Employers Are Seeking a Second Opinion

The pharmaceutical industry likes to say that prescription drugs make up only 9 cents of every dollar spent on health care. For businesses that insure retirees and employees, however, prescription drug costs can be much higher--as much as 20% of total health-care expenditures. And they are rising. In a recent survey of 3,000 employers with more than 500 employees, Mercer Human Resource Consulting LLC found that prescription drug costs per employee rose 17.8% in 2001.

Some companies that have tried for years to trim drug use are now taking a more sophisticated approach. General Motors Corp. (GM ) and Verizon Communications Inc. (VZ ), both large employers, are each undertaking extensive reviews, using elaborate mining of employee data. One fertile area for improvement: data on the overuse and improper use of drugs. By identifying, then eliminating, incorrect uses, administrators say they are hoping to cut costs without compromising health care.

They're also mounting educational campaigns to change employee behavior. GM, for example, has launched a program to educate its employees about the cost-effectiveness of generic drugs and to persuade workers to use them when appropriate. The company sends out newsletters, broadcasts, and messages on pay stubs to encourage workers to ask their pharmacists about generic drugs. In 2000, 35% of drugs taken by GM employees were generics. Although that number has only inched up to 39%, the increase has still saved GM $48 million over the past two years.

When New York-based phone company Verizon took a closer look at its soaring expenditures for prescription drugs--which amounted to nearly $500 million last year--it found some surprises. Combing through the drug histories of its 380,000 workers and retirees, it discovered it was spending $100 million a year on two classes of drugs--ulcer medications such as AstraZeneca's Prilosec, and cholesterol-lowering drugs, including Lipitor and Zocor, made by Pfizer Inc. (PFE ) and Merck & Co. (MRK ), respectively. "The question is, `What did people do before these drugs were around?' They took other medications that were less expensive. And for most of the population, they were just as effective," says James N. Astuto, a Verizon regional health-care manager in Atlanta. Patients who can use the less costly medicines are being encouraged to switch, and the newer drugs are reserved for those who really need them, Astuto says. Rather than rankle employees, the new drug reviews have gone over well. "This is very much focused on making sure people get adequate treatment," says Candice Johnson, a Communications Workers of America spokeswoman.

The brand-name drugmakers, meanwhile, argue that there's a reason their products cost more. They "have fewer side effects, are easier to comply with, and have greater health benefits," says Alan F. Holmer, president and CEO of industry trade group Pharmaceutical Research & Manufacturers of America. Although critics say that is true of some new drugs, it ultimately depends upon the patient. Some may need the new drugs, they insist, while others will do fine on older, less expensive medications. Companies that are able to make those distinctions have a sterling opportunity to reduce costs--without degrading the quality of care.

By Paul Raeburn in New York, with Amy Barrett in Philadelphia, and bureau reports

    Before it's here, it's on the Bloomberg Terminal.