By David Kwasny, president, Restat
As the health care reform debate moves into 2011, U.S. health care costs continue to spiral out of control. Meanwhile, Americans spend twice as much as residents of other developed countries on health care, yet receive lower quality, less efficiency and have “the least equitable system,” according to the 2010 Commonwealth Fund report.

The cost to provide health care coverage has increased 41 percent from 2003 through 2009. Yet despite spending double what other developed countries spend on health care as a percent of gross domestic product (17.6 percent in 2009), Americans are not achieving quality health care outcomes.

As one of the largest payers of health insurance coverage in the United States, employers are re-thinking their investment in this area. At a time when the troubled economy has caused increasing pressure for businesses and consumers to cut expenses, financial stress has resulted in tough choices for employers. Many employers are considering dropping health care benefits entirely or passing along more health care cost to employees in the form of higher deductibles and copay amounts.

According to the Kaiser Family Foundation, the sharpest increase in costs related to health care can be attributed to prescription drugs, which account for 10 percent of total health care spending. In 2009 prescription drug costs rose by 3.4 percent compared to 2.5 percent the previous year before the recession. These costs are projected to continue to increase, with the Centers for Medicare and Medicaid estimating that the U.S. will spend $350 billion on pharmaceuticals by 2015.

In spite of a down economy and ever increasing health care costs, some pharmacy benefit managers (PBMs) are making record profits while employers and their members struggle to pay for benefits and prescriptions. The PBM system was created to simplify the purchase of prescription benefits and reduce overall costs.

However, in recent years, conflicts of interest among the parties making up the health care supply system have increased. Many PBMs have purchased mail order services and retail pharmacies. In addition, some PBMs are facing lawsuits filed by state and federal governments (as well as PBM clients) charging them with the practice of negotiating discounts and rebates from drug companies, and then not passing the discounts to consumers and their clients, as contractually obligated. This has earned the practices of some PBMs the “shell game” moniker.

Aligning with Employers for Savings and Simplification

Recently published reports discovered employers could experience significant annual cost savings by adopting a “preferred” pharmacy benefit strategy. The report, “The Value of Alternative Pharmacy Networks and Pass-Through Pricing,” was researched and written by the internationally recognized consulting firm of Milliman, Inc. and clearly outlined—for the first time—actuarial estimates of prescription drugs’ retail cost components.

Milliman’s comprehensive analysis broke apart the traditional pharmacy benefit model. It studied the key cost and distribution components among drug manufacturers, wholesalers, drug stores and PBMs. The findings help explain why some pharmacies and PBMs could offer lower prices on prescription drugs and how an employer could obtain significantly lower costs by using preferred pharmacies. Further savings also were achieved by the option to increase generic utilization.

Pharmacies in a preferred network offer lower drug prices and reduce dispensing fees to attract customers from competing drug stores and increase foot traffic from members enrolled in the employer’s pharmacy benefit plan. That means employers can opt for a pharmacy benefit model that eliminates questionable PBM tactics like discount based pricing, manufacturer rebates and incentives for steering customers to in house pharmacies. Instead, the use of a transparent fee for service model can result in major savings, reversing the increasing cost trend.

The Milliman study was commissioned by Restat—the largest privately-owned pharmacy benefits manager in the country— whose new Align program has achieved cost savings for its clients consistent with those identified by Milliman.

Changing the Game by Cutting the Fat

Align was created to reduce costs and help simplify the complexities involved in purchasing a prescription benefit by providing a simple fee for service approach. Align accomplishes what the Patient Protection and Affordable Care Act (PPACA) originally set out to do by providing complete transparency, clarifying where the dollars are going and helping to remove cost from the health care supply system.

Complete transparency is achieved because the payer knows exactly what portion of their dollars goes to the PBM rather than bundling drug costs and channel costs together with the cost of administering the benefit.

What can an Employer Expect in terms of Savings?

Restat’s client data show that an employer with 6,000 employees can save up to $1 million annually if members choose the in-network options, and the savings potential is increased significantly by encouraging generic utilization.

Restat’s data also showed by increasing the percentage of generic utilization from 68 to 73 percent the potential for savings is doubled to more than $2 million.

How Align Works

Align’s success is tied to client satisfaction, charging a simple fee for services and accepting no hidden payments from pharmaceutical companies. Additionally, Restat’s Align model collects no revenue from manufacturer rebates or ‘spread’—the difference between the price the pharmacy collects from the PBM and the price the PBM charges employers, a common feature of traditional PBM contracts.

Restat negotiates openly on behalf of its clients with a pool of pharmacies to find a provider whose offers best align with its client’s goals, then designs a plan that includes meaningful incentives to encourage employees to become smarter health care consumers, resulting in a more cost-effective prescription spend. The Align network currently includes nearly one-third of all pharmacies in the nation.

“We’ve been a client of Restat’s since the early 1990s,” Caterpillar Inc. Pharmacy & Informatics Manager, Todd Bisping said. “Their program is consistent with Caterpillar’s goal to reduce complexity and provide transparent, cost plus prescription drug pricing that has enabled us to achieve significant savings this past year as a result.”

Restat Vice President of Sales and Marketing Terry White said the Align client base has been growing steadily since its launch.

“Milliman’s independent research confirmed what we already understood from our own client experience,” White added. “Employers are very receptive to Align’s more affordable and transparent cost-plus or preferred network approach. Our clients understand that it’s a win-win for everyone; employers, their members and the U.S. health care supply system. The bottom line is that if everyone in the U.S. were covered by Align, $30 billion of health care cost could be cut from the U.S. health care system. We refer to it as health care reform without legislation.”

To read what the internationally recognized consulting firm Milliman has to say about Align visit align.restat.com to download the white paper.

RESTAT is a member of the Dohmen family of companies, RESTAT simplifies the purchase and use of healthcare services through independent benefits management. As the largest independent PBM, RESTAT has no ownership ties to drug manufacturers or distribution channels, making it uniquely positioned to provide customers with unbiased benefit management solutions. With more than 25 years of experience managing pharmacy benefits, RESTAT is also one of the world’s most experienced benefit managers. Today, more than 4,200 companies, ranging in size from the Fortune 50 to small managed care organizations rely on RESTAT to manage the prescription benefit for over 7.5 million people nationwide. To learn more, visit www.restat.com or call 800.926.5858.