Fixing Health-Care Waste, One Pill At A Time
from
March/April 2006
by Rob Notron
Health-care costs, rising at or near double-digit rates, are no
longer just a dark threat. According to a 2005 PricewaterhouseCoopers
survey of top executives at U.S. multinationals, half say health-care
costs are already contributing to slower profit growth. And the problem
promises to worsen.
Myriad reasons can be put forth to explain this crisis, but one big contributor appears in the chart on page 15: Pharmaceuticals claim an ever-rising share of health-care outlays, and a significant chunk of that expense reflects the increasing popularity of so-called lifestyle drugs. These include remedies for such things as impotence, male-pattern baldness, infertility (and even fertility, since most plans now cover birth-control pills), insomnia, weight loss, and skin blemishes—all dispensed by prescription. What they have in common is that they aim to treat conditions that affect “quality of life” but are not life-threatening. In some cases, their primary use can seem cosmetic or recreational.
In addition to treating impotence, for example, drugs like Viagra and Levitra also treat what used to be called low libido, or simply getting old. The drug companies have now taught us to recognize this as a medical condition known as “erectile dysfunction.” One man’s pharmaceutical remedy, in this case, can be another’s party drug.
Or consider sleeping pills. A recent study by the managed-care company Medco Health Solutions found that Americans spent more than $2 billion on sleeping aids like Ambien in 2004. Much of that buying has been encouraged by ubiquitous ads and commercials that promise a restful night’s sleep—the result of a 1997 relaxation of federal laws prohibiting the direct marketing of pharmaceuticals to consumers. Currently an estimated $4.5 billion per year is spent on prescription-drug advertising.
Total spending on lifestyle drugs is $23 billion annually, according to estimates by Reuters Business Insights. Cost-conscious companies are tackling this challenge in two ways, says Tim Watson, a principal of the Dallas-based consulting firm Pharmaceutical Strategies Group. The first is simply to exclude lifestyle drugs from coverage. “With today’s advances in biotechnology and other fields, we’re seeing the development of innovative but expensive treatments for life-threatening conditions like diabetes and heart disease,” says Watson, who has graduate degrees in both pharmacy and business. “You can’t cover these and at the same time provide coverage for things that just affect lifestyle.”
He adds that selling this message to employees is not difficult for most companies. “It’s a question of balance,” he says. “Most employees understand that you can’t cover everything.” One outfit that came to this conclusion was VML, a Kansas City, Missouri, Web marketing and advertising agency, which in 2004 faced a 40% premium hike for its 400 employees’ medical insurance. The company was able to get the increase down to 25% after eliminating coverage both for lifestyle drugs like Rogaine and Viagra and for prescription drugs targeting conditions such as allergies that often respond to remedies sold over the counter.
The other approach to controlling spending on lifestyle drugs is to sharply limit coverage—by requiring prior authorization, perhaps, or capping the quantities permitted, or pumping up the deductibles or co-payments established by the health-care plan. To do this, some companies are moving to plans that have four or more tiers of coverage, with such necessities as antibiotics in the first (lowest-cost) tier and lifestyle drugs at the top, requiring co-payments of $50 or more per prescription. Recent surveys estimate that 3% of all health plans now have four or more tiers, and the percentage is growing. Still other companies are making lifestyle drugs available through their plans while offering no company contribution at all, which still allows the employee to benefit from network discounts and save as much as 15% of the regular retail cost.
Defining what is and isn’t a lifestyle drug, however, can be difficult. Drugs like Propecia and Rogaine, which treat male-pattern baldness, for example, seem to be no-brainers, while others can be tricky.
There’s no easy solution, says Watson: “The gray areas would include erectile-dysfunction drugs, where there has been a fair amount of debate about their therapeutic value, and skin treatments like Retin-A, which have legitimate medical uses as well as cosmetic ones.” As for sleeping pills, at least one recent study finds that people with sleep disorders can often achieve better results through behavioral changes, like consuming less alcohol or caffeine in the evening, than with pills.
Sometimes, however, refusing to cover certain lifestyle drugs may be downright self-defeating for companies. Some health plans, for example, lump smoking-cessation remedies—nicotine gum, patches, and pills—together with lifestyle drugs. PricewaterhouseCoopers notes that although these treatments can add $1.20 to $4.80 per employee per year to the costs of health coverage, they have been found to yield a return on investment of as much as 300%.
