Large employers unite to negotiate drug prices

Fifty of the largest employers in the United States have formed a pharmaceutical drug benefit coalition, which will attempt to bargain directly with drug manufacturers on behalf of its more than five million retired and active employees and their families. The group hopes to achieve price transparency in prescription drugs, meaning that employers would know the actual gross and net price for each drug, according to the Human Resources Policy Association (HRPA). The Washington trade group has teamed up with Hewitt Associates LLC, a benefits consulting firm, to guide the coalition.

This move could potentially reduce the role of the pharmacy benefit management (PBM) companies. However, PBMs would not be cut out of the equation, said Ken Sperling, of Hewitt’s Health Management Practice, in Norwalk, Conn.

The 50 companies, including Caterpillar Inc. and Florida Power and Light, will push for price transparency on the top drugs its members spend the most money on, according to Sperling. These include Lipitor (atorvastatin, Pfizer), Zocor (simvastatin, Merck), Prevacid (lansoprozole, TAP), Nexium (esomeprazole, AstraZeneca), Celebrex (celecoxib, Pfizer/Searle), Vioxx (rofecoxib, Merck), Paxil (paroxetine, GlaxoSmithKline), Effexor (venlafaxine, Wyeth), and Allegra (fexofenadine, Aventis).

Sperling pointed out that the pharmacy market is opaque where price and quality are concerned. This opaqueness sometimes creates conflict of interest. Conflicts could arise, for instance, when a PBM is trying to maximize rebates instead of trying to achieve the total lowest cost, he explained. Then again conflicts could arise when PBMs are in charge of formulary placement, when the employer should really be in charge of plan design, he noted.

Finally, the coalition believes that the current system does not allow consumers to have an intelligent discussion with their doctor about what the right therapy is for them, regardless of financial incentives. "The value of this purchasing coalition for Florida Power and Light is that, in the end, we would have a true cost of a drug that we could clearly communicate to our employees, who, along with their doctors, could then make decisions on what drugs are best for them. They would be better equipped to make the kinds of decisions they make for many other things they purchase," said Jane Lohmeier, manager of benefits for the FPL Group, which includes 11,500 employees and over 30,000 member lives.

Lohmeier pointed out that because it is hard to know what the real cost of a drug is, it is hard to communicate to employees effectively. For example, confusion arises when several drugs are in the same class but have a difference in price. "It is hard for us to get to what that net price is. It is very hard to have our employees act like consumers," she explained. "We basically want to remove the middleman, get rid of the somewhat perverse incentives that are within the current model, and come up with a price we can communicate to our employees. Once employees are empowered with valid information, they will make good decisions."

Feasibility study

According to Sperling, the coalition is meeting with manufacturers and trying to negotiate a net price–with no rebates, volume incentives, or side payments–after which the employers will pay the PBMs an administrative fee to adjudicate those prices. "The PBMs will adjudicate claims at the point of sale, run a mail-service pharmacy, and manage a network. We are not trying to take money away from anybody. We are trying to move it into the right buckets," he said.

The coalition, said Sperling, is targeting the top 50 to 100 drugs. "We are collecting the utilization data from the coalition participants, and then we will stratify by product and manufacturer. The top 50 drugs represent about 60% of the total spent, and the top 100 represent 70%-75% spent. We will stratify where the volume is, and it will include the brands," Sperling explained, noting that the total volume represented by the 52 companies who are participating in the coalition is about 5 million to 5.5 million lives.

The coalition began negotiations with the manufacturers in July, and analysis is planned for September. A decision regarding feasibility is anticipated by late September. If feasible, implementation is expected no later than the first quarter of 2005.

"The current pharmacy model may have a limited lifespan when the Medicare drug benefit takes effect and full disclosure of rebates is required, but we would rather be ahead of that market change," Sperling noted.

And what does the PBM industry think of all this? "The coalition’s plan is only a partial solution to a much broader solution opportunity," said Kevin Nagle, president, Envision Pharmaceutical Services, a benefit management company in Folsom, Calif. "The coalition is addressing the issue of rebates and administrative fees as it relates to pharmaceutical manufacturers, but there are other services that are not taken into consideration where there is still significant opportunity for the coalition to benefit," said Nagle. Negotiating payment rates for stores and mail-order pharmacies is also key in controlling drug costs, he added.

Nagle contended that if the coalition focused its efforts on a PBM that has a transparent and full disclosure model, it would not have to proceed with its current strategy. "If they use a transparent, full-disclosure PBM, the group could find savings well beyond just the top 50 drugs because of other repricing matters that traditional PBMs frequently do," he said.

The pharmacist role

When evaluating pharmacy benefits, value, along with price and quality, should be considered. The American Pharmacists Association is keeping an eye on the coalition’s progress. "We hope they will use their coalition to look not only at the price of medications but at the value that they are getting for them," commented Susan Winckler, pharmacist, attorney, and VP for policy and communication at APhA. APhA hopes that the coalition looks at its feasibility study in the context of whether the employers are getting the most from their pharmacy benefit, she said.

According to Winckler, the coalition may need to consider something like medication therapy management services, which would enhance the role of the pharmacist.

Lisa Samalonis

The author is a medical journalist based in New Jersey.

Lisa Samalonis. Large employers unite to negotiate drug prices.

Drug Topics

Aug. 23, 2004;148.