More MCOs will use OTCs as first line of defense

Will more managed care organizations (MCOs) be providing coverage for selected nonprescription medications? The notion, once thought impossible, now seems closer to reality than ever before.

The reason? MCOs are searching for viable options to help them cut costs and stay prosperous. And providing coverage for OTC drugs is a natural step for them, according to John P. Isakson, president of Ashton Pharmaceuticals, a health-care consulting company in Sunrise, Fla.

Speaking at the 13th Annual National Managed Health Care Congress in Atlanta, Ashton predicted that "OTC products will play a bigger role in the treatment of patients within the next few years because, in order to save costs, MCOs will need to start adding nonprescription products to their formularies."

To what extent are health-care costs rising? As one example, "a few years ago, premiums were declining because companies were competing against each other for members," Isakson explained. "But that is not happening today. Instead, we are now finding tremendous increases from year to year." And citing data from the market research firm IMS, Isakson said the average annual health-care benefit cost for employers climbed 8.1% to $4,430 per employee from 1999 to 2000. Average costs for prescription drugs rose 3.3% during the same period.

Isakson pointed to other statistics that are driving MCOs to add OTCs:

• Last year, 55% of emergency room visits were classified as not urgent–25% could have been treated at home.

• The average nonprescription medicine costs about $4.75, whereas the average prescription medication is $44.42, plus an office visit charge of $70. OTC savings for self-treatable ailments are more than $100.

• OTC products will become increasingly used as the first line of defense against disease and illness.

Isakson offered a number of strategies that many MCOs might employ to provide OTC benefits to their advantage. First, these organizations must determine their target audience: Will it be long-term care, Medicare, health maintenance organizations (HMOs), independent physician organizations (IPOs), hospitals, mail order, or women of childbearing years? Secondly, they must identify specific product classes, which will most likely fall into these categories: cough/cold, analgesics, antacids, nutritional/herbal supplements, and gastrointestinal.

MCOs will also have to develop marketing programs that enhance cost savings, Isakson suggested. Examples include promoting the benefits of aspirin to heart attack patients, encouraging the use of folic acid among women of childbearing years to reduce the risk of birth defects, and offering calcium products to reduce the costs associated with osteoporosis. Additionally, MCOs will have to become more creative in controlling costs by using such strategies as risk sharing, long-term contracts, and customized reimbursement programs, which might, for example, eliminate a co-pay if a member takes a supplement.

Despite the apparently significant upside to adding OTCs to MCO drug benefit programs, there are still a number of challenges the market must overcome to make such programs a reality, said Isakson. Some of the potential problems are:

• Products not being included in pharmacy benefit managers’ formulary

• A lack of product availability through local prime vendors

• Difficulty in getting contracts loaded into prime vendors’ contract file and into separate distribution centers

• Getting distribution for Independent Physician Association (IPA) models and adequate retail pharmacy stocking

Despite these potential stumbling blocks, Isakson said the addition of OTC coverage is still very likely. The bottom line, he said, is that "nonprescription medications can hold MCO costs down."

Leah E. Perry

The author is a writer in the Atlanta area.

Leah Perry. More MCOs will use OTCs as first line of defense.

Drug Topics

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