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PRICES

The Outlook for Prescriptions

Mail-order suppliers are one of the few ways to fight rising costs

Political power, declared Chairman Mao, comes from the barrel of a gun. Political clout has even been known to keep prescription drug prices down temporarily. But as the Clinton administration discovered when it recently tried to jawbone down drug prices, moral suasion only works so long as people fear your political might.

According to the Bureau of Labor Statistics, inflation rose 134 percent between 1975 and 1990. In that same period, drug prices increased 255 percent. In 1991 alone, prices jumped 9.4 percent, which was over three times that year's inflation rate. That upward spiral slowed to only 3.3 percent in 1993, however, as First Lady Hillary Rodham Clinton led an all-out drive to overhaul the health care system and to curtail costs.

"Politics was a factor in early 1993," says David Kanudsen, an economist who tracks drug prices for the Bureau of Labor Statistics. Feeling the heat of the Clinton initiative, "pharmaceutical companies made a pledge to restrain prices to overall inflation," Kanudsen says. As a result, wholesale drug prices rose just 1.9 percent in 1993, which was the lowest increase in 20 years, according to a Pharmaceutical Manufacturers Association spokesman. Yet a year later, when the Clinton administration had to abandon its health care reform plan in the face of overwhelming political opposition, medical prices jumped 0.6 percent in a single month. On an annualized basis, that was the equivalent of a 7.5 percent inflation rate.

Though drug price rises have moderated some since then, most experts believe the increases will continue to outstrip inflation. "It's expensive to do research on new drugs—someone has to pay. There's no free lunch," says Warren Greenberg, a professor of health economics at George Washington University.

Managed-care companies have had some effect on moderating price increases because of the bargaining strength these providers have with the drug makers who supply them. But even managed-care plans are having difficulty keeping drug prices affordable. According to the trade publication, Drug Topics, the cost of ingredients in the average drug prescription for HMO participants went from $19.20 in 1992 to $20.39 in 1993, an increase of 6.2 percent. Total annual prescription drug costs for HMO members reached $109.43 in 1993, an increase of 17 percent in just one year.

One restraining force on price hikes today are mail-order drug distributors. Beginning after World War II, the federal government began a program that allowed veterans to buy prescription drugs through the mail. Now the largest distributor of mail-order drugs, the Department of Veterans Affairs fills 40 million prescriptions a year. After the DVA launched its mail-order service, the American Association of Retired Persons followed suit. Today AARP fills some 10 million prescriptions annually. Anyone can use the service, it's not just for AARP members (see "Expert Source" in paper edition).

Many corporations, unions, governmental entities, and managed-care organizations also have mail-order plans. Called pharmacy benefit managers (PBMs), these mail-order services offer prescription drugs for chronic illnesses such as diabetes, though not for acute illnesses such as infections. Depending on the case, PBMs can cut drug costs by a third or more, according to some estimates.

The three largest PBMs are PCS Health Care Systems, Diversified Pharmaceutical Services, and Medco Containment Services, and their business is booming. According to the American Managed Care Pharmacy Association, mail-order drug sales have grown from $100 million in 1981 to $5 billion in 1993. Medco says that it has 38 million continuing customers, with 29 million of them in formulatory-based programs, which means that generic brands are used. Their customers' needs are handled through National Rx, a mail-order pharmacy network with 11 centers, and Medco's retail pharmacy chain, which includes over 48,000 pharmacies nationwide.

Some PMBs have disease management programs, which help cut costs further by educating patients on the most effective treatments for their conditions. Medco has a database, for instance, that identifies high-risk or high-cost patients.

Someone with asthma would be considered a high-risk patient, for instance, because asthma sufferers often fail to use their inhalers properly, leading to needless medical problems and needless expense. In a disease management program, a pharmacist would provide asthma patients with instruction in the way to use inhalers to forestall asthma attacks.

If that doesn't help, the pharmacist can also consult with the patient's doctor on whether a different prescription might be in order. The result: The patient receives better treatment and it costs less to boot.


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