Pharmacies taste dose of managed health care

Like other health-care providers, retail pharmacies are feeling the effects of a cost-conscious health-care system.

Managed-care companies have put the squeeze on pharmacies in their effort to control skyrocketing costs for medication and now dictate what kinds of drugs are dispensed and how they are priced.

Big chain pharmacies rely on volume to keep them profitable in the face of stricter controls, but smaller, independent pharmacies find it harder to remain viable in a more frugal health-care system.

Ed Horejs has worked in the pharmacy business in Fort Collins for almost 20 years. The former owner of Northern Pharmacy partnered with Steele’s Markets in 1988 and is now pharmacy director for the chain’s five pharmacies, including one at Poudre Valley Hospital.

Horejs said that these days, insurance companies run the show and pharmacies have no choice but to cooperate if they want to stay in business.

“When it appeared that there would be national health care, the insurance companies said, ‘Let us take care of it,’ and we’re seeing the effects of that now,” Horejs said. “It’s been a positive factor in containing costs, but it may be in retrospect, a few years from now, that we see how it’s affected the quality of care.”

Horejs said that control on the part of the insurer means that fewer drugs are available and generic drugs are used more frequently.

“The patient has a choice at the time he chooses an insurance plan, but after that, the insurance company determines what patients are getting,” he said.

Like physicians, pharmacies contract with insurance companies and agree to work within the plan’s formulary. Each formulary indicates the types of drugs available and their cost. Many have a generic mandate, which means that if a Class A generic is available, it will be prescribed, unless the physician specifies a particular brand.

Such mandates restrict the patient’s choice, but Dr. Val Dean, executive vice president and chief operating officer of PacifiCare in Colorado, said the fact that pharmacies are the most rapidly increasing factor in health-care costs, increasing at a rate three times faster than any other area, necessitates formularies.

“It is incumbent upon us to control costs, and formularies are one way to do that,” Dean said. “When we set a formulary, we look at every class and determine which is the best drug in terms of efficacy, side effects and cost. This way, we eliminate ‘me too’ drugs — the copy-cat drugs in each category.”

Dean added that formularies are not inflexible.

“It isn’t true that if a drug isn’t on the formulary a patient can’t get it. A preauthorization process between the physician and the pharmacist is necessary to justify going outside the formulary, but it is possible,” Dean said.

Horejs said a pharmacy such as Steele’s contracts with several hundred companies and is therefore faced with a slew of formularies. To handle the flow, pharmacies process prescriptions online, with the help of pharmacy benefit managers. PBMs are a relatively new breed of company that contracts with self-insured employers, state programs and insurance companies to adjudicate and process prescriptions.

“The days of the typewritten prescription are over,´ said Dan Schneider, regional sales manager for Managed Pharmacy Benefits Inc., a mid-sized PBM based in St. Louis. “Pharmacies became the first area of health care where everything could be done online, and PBM’s came into vogue as computer-processing operations for the industry, expanding their role over time.”

Schneider said PBMs allow a customer to take a prescription to any pharmacy, where it will be cross-checked with other prescriptions the customer may have had filled elsewhere.

PBMs also handle claims and billing, and Schneider’s firm produces management reports for its customers to help them tailor their prescription plans.

In addition, most PBMs have a mail-order service for prescriptions. The mail-order prescription business has grown significantly as a method for filling prescriptions favored by insurance companies. But some believe it’s used excessively and inappropriately.

“Mail order has its place,” Schneider said. “There is usually a lower cost for mail-order prescriptions, and people with long-term prescriptions can get deeper discounts. The disadvantage is that the patient never sees another health-care provider, so a problem with the prescription might not be detected. It can also be wasteful because mail-order houses generally fill prescriptions in large quantities, which may or may not get used.”

Dean said that PacifiCare offers a lower co-pay for people on chronic medications who use a mail-order service, but such incentives are limited to those cases.

“Mail order doesn’t work for acute illnesses,” Dean said, “but it is valuable in cases where interaction with a pharmacist isn’t necessary.”

Incentives and price-cuts are also likely to be offered by the big-chain pharmacies, such as Walgreen’s and Wal-Mart. Horejs said the biggest growth area in pharmacies is in grocery stores and big retailers, because they are convenient and have a high volume of customers. Big chains have more buying power and more clout than independent pharmacies, he said.

In terms of price, it is preferable to deal with the bigger chains,” Dean concurred. “And, when we looked at both independents and chains against our service standards, we found that the chains also compete well in terms of service.”

To contend with relatively low market shares and heightened competition, Steele’s pharmacies and other independents have banded together to form buying cooperatives large enough to make the drug companies and insurance companies sit up and take notice.

In Colorado, more than 200 independent pharmacies, representing almost 50 percent of the state’s retail pharmacies, are member/owners of RxPlus. RxPlus is a for-profit company that negotiates purchasing and provider contracts, administers it’s own prescription plan for self-insured employers, and lobbies on its members’ behalf.

“Working together makes us more like a chain store,´ said RxPlus executive director Barb Pietrafeso. “One independent pharmacy may purchase $100,000 worth of pharmaceuticals a month. Multiply that amount by 200 or more members, and you grow your buying power. It’s the same with third-party payers. One contract representing a couple hundred stores is preferable to 200 separate contracts.”

The effects of managed care reach beyond the pharmacies to companies that research and manufacture the drugs themselves.

Jeff Trewhitt, spokesman for PHARMA, the trade association for research-based pharmaceutical and biotech companies, sees the impact of managed care in the increase in consolidations.

“Companies are joining together to make sure they have the resources to see their products through development,” he said

Trewhitt noted that the health-care industry is demanding and getting lower prices for drugs, bringing the pharmaceutical industry’s inflation rate to one-third of what it was seven years ago. But the cost to develop a new drug is still high – $300 million to $500 million to research and develop a drug over an average of 12 to 15 years.

Dean said the high profit margins for drug companies trying to recoup their investments contribute to the exorbitant costs for pharmaceuticals and should be looked at, along with other means to control costs.

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