WASHINGTON, March 25 (UPI) -- In the face of accelerating innovations and rapidly increasing prescription drug costs, health insurance companies are making choices that not only threaten their financial well being, but also raise questions about cost and quality of care for both patients and insurers, some health policy experts said.
According to a recent study from the RAND Corp., "Pharmaceutical Technology Assessment for Managed Care: Current Practices and Suggestions for Improvement," managed care firms are not assessing adequately the clinical and financial impact of new drugs. This results in increased health risks for patients and financial risks for the health insurance companies themselves.
"There is an enormous focus on rising prescription drug costs," said Larry Levitt, vice president at the Kaiser Family Foundation and director of the think tank's Changing Health Care Marketplace Project. "It is the fastest growing part of the health care system and most managed care plan budgets."
The new classes of drugs and pharmaceuticals that have come on to the market in large numbers over the last decade have raised questions about exactly which prescriptions health insurers should cover. These new drugs include those derived from biotechnological and genetic processes, as well as lifestyle drugs like Viagra.
"The industry is obviously very profitable, and maybe if costs were only going up 10 or 12 percent a year, people would be willing to follow," said Levitt. "But costs are going up 20 percent per year, which has pushed people over the edge."
Experts say this trend is caused by several factors, including the medical profession's increasing dependence on new pharmaceuticals for treatment; moves by pharmaceutical companies to replace drugs that are losing their patent protection with new -- often more expensive -- formulas in order to protect market share; and the aging of a large portion of the U.S. population that over time becomes more dependent on drugs to remain in good health.
Levitt said the most important factor is the shift by physicians from the use of older, cheaper drugs to newer, more expensive ones for treatment.
Insurers also play a significant role in this process. But the RAND study, prepared by Samuel A. Bozzette and a team of RAND analysts for the French international pharmaceutical conglomerate Sanofi-Synthelabo Inc., concluded that the committee-based method used by most health insurance companies to analyze whether they will cover a new drug usually focuses on a set of issues -- including safety and effectiveness -- which, while critical, is nevertheless too limited.
The researchers report that these committees do not generally address other important issues, such as the effect a new drug will have on overall patient care and on the company's financial health. While this approach may yield some answers to practical management questions, the report says, it more often than not ignores larger short- and long-term clinical and financial consequences.
Those potential consequences -- such as high demand for a drug from patients and physicians leading to cost increases to the insurer -- are interrelated. Other likely potential effects of a new medicine, they say, are that it could make treatment of a particular ailment more expensive in the short term, but less costly over time.
The study says that the lack of attention to such issues occurs because evaluation committees at managed care organizations have "limitations on resources or skill mix," or "because the original questions are drawn in too narrow terms."
But according to Joseph Antos, a resident scholar at the right-leaning American Enterprise Institute and a health care policy analyst, it is an overstatement to say that companies are failing in this arena, given the difficult challenge that prescription drugs present to insurers.
"I am very sympathetic to any health plan executive who says that they don't think they are taking full advantage of the new technologies," he said. "It is very difficult to assess properly all the circumstances that go into a patient's taking a more expensive drug. Ultimately HMOs and health plans do adapt to changes in technologies, but this is a wonderful world in which new drugs come to market at a fairly rapid pace."
Antos said it was important to note that all health plans have a process -- typically arduous -- through which patients can gain approval for the coverage of drugs not covered under the company's usual formula.
Levitt said the trend among insurers is to pass prescription drug costs on to patients, ever since the failure of their attempts in the 1990s to limit costs by reducing the number of drugs they would cover.
"The (health) plans are looking to trim in any way they can," said Levitt. "But there was a backlash and the restrictive formularies and approved lists of drugs have been revised. The (health) plans tend now to be erring on the side of caution by allowing more drugs rather than fewer to be covered. Instead, they are trying to control costs by shifting expenses to patients. There are very few people left with insurance that pays near full prescription coverage, whether you are on the low end or the high end of the (insurance) spectrum."
Levitt said the advent of three- and four-tiered prescription drug co-payment systems, along with other schemes like preferred brand names, in which insurers pay less due to deals with pharmaceutical companies, are part of an overall attempt to discourage the use of newer, more expensive drugs.
This approach angers people a lot less than cutting the number of drugs covered, said Levitt. "But then it may anger people when the realize how much they have to pay."
Nevertheless, Antos predicted that the multi-tiered co-payment model is, at least for the time being, here to stay, with four- and five-level plans likely to become more commonplace.
Steve Zuckerman, the principle research associate with the Urban Institute Health Policy Center, told United Press International that another quality-of-care issue is whether poorer patients or their doctors will make unwise medical choices due to the higher costs for some drugs under these tiered systems.
For instance, generic drugs usually are covered by insurance companies, typically at a higher rate, because they are cost less than name-brand pharmaceuticals. Questions arise as to whether physicians, consciously or not, may direct their poorer patients to the cheaper generics that may or may not be less effective than new and innovative -- but much more expensive -- name-brand drugs.
Antos agreed that patient care could be compromised under these multi-tiered coverage models. And both he and Levitt said that shifting costs to consumers is only effective as a short-term response to offset other rising costs such as hospital and doctor fees.
"It is sort of a sad state of affairs," said Levitt. "We have really rapidly rising health care costs, with few real ideas on the table on how to deal with it. I happen to think that shifting the cost to consumers gives the grand illusion of controlling costs, but it is just rearranging the deck chairs on the Titanic."
Zuckerman, Antos and Levitt all say there are no easy answers to the problem of increasing pharmaceutical costs, and that finding solutions will be difficult.
"There is not a lot of data out there," said Zuckerman. "Pharmaceutical companies, and I think companies in general, don't really release that kind of information. We do not know how, in the private market, payment policies and co-payments really affect getting many services in health care. It would be better if this information was out in the public domain."
Despite this, Antos predicted that over the next decade the cost increases in prescription drugs might self-correct to a degree.
"We are going to see some slackening in the rate of pharmaceutical costs over the next five to ten years because the pipeline of innovation coming through the system is drying up," he said.
Antos said this view is common among those who follow the pharmaceutical industry and is based upon the number of drugs currently in the Food and Drug Administration approval process -- the standard indicator of what is farther back in the developmental pipeline.
He said the predicted slowdown could be attributed to the natural cycle of drug innovation. There was a spurt of innovation around 10 to 15 years ago, and now we are coming to the end of its effects, he said, with the introduction of new pharmaceuticals already down over the last several years. In addition, he said, various popular drugs like Claritin are losing their patent protection. This has the effect of reducing their cost because they must compete with the generic versions that will be brought to market.
