New Drug Plans Aim to Reject Discounts to Save Money

MAY 01, 2004

In an attempt to control rising drug costs, several insurers are testing new prescription drug plans that give up discounts to save money. Referred to as reference-based pricing plans, the new programs give up the discounts that drug companies offer in exchange for promising their top-brand products a place on insurers' preferred lists. Instead, the cost the patient pays is based on a drug's actual cost. Insurers expect patients to choose cheaper medications and hope that they opt for generics. Generally, a reference-based pricing plan ties patients' payment for a drug to either an average price or the cheapest price of others in the same category.

Insurers paving the way for the new plans believe that the change is necessary because current prescription programs?usually 3-tiered copayment systems with patients paying 1 price for generics, 1 for a nonpreferred brand, and another for a preferred brand?are not cutting costs. The dilemma with current plans, for insurers, is that a majority of patients buy more costly brand name drugs over generics. "Obtaining discounts on brand name drugs doesn't really help in increasing use of generic drugs, and that is where the savings are," said Robert Seidman, chief pharmacy officer for WellPoint Health Networks, 1 of the insurers experimenting with this new plan.

The move toward new programs, to some degree, reflects unhappiness with pharmacy benefit managers (PBMs). Both insurers and employers argue that PBMs oftentimes shortchange them by keeping too much of the rebates for themselves to increase their own profits.



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