A data transparency surprise: variations in drug costs

In a year replete with bad news, one of the most encouraging pieces of good news in 2010 was an uptick in the rate of growth of consumer-directed health plans. By the end of this year, more than 60% of U.S. employers are expected to offer a CDHP, according to a July 2010 GAO report.

Why the surge in interest in CDHPs? The most likely factor is the Patient Protection and Affordable Care Act - specifically, the law's lack of meaningful cost containment provisions. Faced with rising and anticipated premium hikes in 2011, many employers turned to CDHPs (in addition to cost-sharing and other steps) in an effort to restrain future cost increases.

The result: a big jump in the number of employees and family members facing the unfamiliar position of being accountable for paying for - and shopping for - their own health care. To make the right health care spending decisions, these newly empowered consumers need reliable, actionable information - a critical need that is fueling rapid growth and innovation among companies that provide health care data that is transparent and easy to use.

 

Transparency index

One of these companies, change:healthcare, recently launched the first in a series of reports that identifies specific savings opportunities in prescription drugs. Key findings include this shocker: The cost of a prescription drug at Wal-Mart, Target and CVS can vary widely - even at one chain's stores in the same area. For example, it's possible to save $2,500 a year on Abilify, one of the most widely prescribed medications, simply by switching pharmacies.

According to Amanda Cecconi, change:healthcare's COO, the new Healthcare Transparency Index series is based on data from more than 1.3 million medical claims submitted by the firm's customers, totaling $220 million from 90,000 individuals in all 50 states over a 12-month period.

The key is that all of this data is actionable, says change:healthcare's Michael Haskins. "It's not the result of gathering a bunch of anonymous data by zip code; it's all real data from our clients. It's one thing to say, 'There's a difference in the cost of hospital services between Texas and New Jersey,' on the one hand, and 'there's a real choice of cost based on place of service within a 20-mile radius of where you live' on the other."

Americans are terrific shoppers, Cecconi believes - except when it comes to health care. "It's not that we don't know how to shop, she says, "it's that we don't have the information that we need. We feel very strongly that without cost information, all of the other components of a health plan - whether it's wellness, disease management, quality - are not going to be as effectively delivered. Understanding what things cost and making good decisions for the individual and his or her family and for their employer are critical for a cost containment strategy at any level."

The focus of the first Index was to look at medications because the prescription drug component "is a pretty good proportion of the savings we are delivering" to clients, Cecconi explains. "In the world as it exists today, individuals - patients, employees - feel that if they go generic they're doing the best they can. But the Index really begins the process of illuminating the fact that that isn't good enough, and that there are big discrepancies in price."

The amount of variance creates a lot of opportunity for cost saving, Cecconi points out. "As we mine it and share it with people, they can take advantage of it, but it is not stuff that historically the HR function in a company would even focus on because there's this belief that there's nothing anyone can do about it, and that there's not much there to improve upon because it's all been optimized through other means.

"As we're talking to brokers and organizations like Mercer and others about what we do, it's funny. The world is oriented toward the high-dollar things - everybody want to talks about the big in-patient services. Nobody really believes that these variations in drug pricing have been going on."

The impact of the inaugural Index surprised the change:healthcare staff. "When we work with our clients and a family may be taking five, six, seven medications, it kind of blows them away. In the same area, the same chain could have different pricing at different locations. People could switch chains and get a tremendous financial benefit. For the individual employee, that's a finding that's quite shocking," says Cecconi.

Future editions of the quarterly Index will look at different areas of health care. The next Index, for example, will focus on high-frequency outpatient medical services - primary care visits, annual appointments, chiropractic visits, physical therapy, and diagnostics like labs, radiology, etc.

 

Plan design implications

From a benefits design or a benefits broker's perspective, there are a couple of "aha" moments, says Christopher Parks, change:healthcare's CEO. "The first is, if you think of the strategies around value-based benefits design, the notion is, 'how do we get alignment around quality utilization and some increasing cost lever within the benefit plan design?' For example, first you move to three-tier pricing, then step therapy, then you increase deductibles and carve-outs. Everyone has been focused on these benefit design changes and value-based benefits. When you are thinking about benefits design, quality utilization, you're thinking of cost from the point of view of insurance or member cost - you're not thinking about cost of service," says Parks.

With increased cost to the employee, though, there has to be "a lever" or insight on the part of that employee as to what those costs are as they take on and bear that responsibility, Parks explains. "Then you have individuals saying, 'Well, maybe it is 20 bucks, but surely that generic prescription is the same price no matter where I go.'" And here is the second "aha" moment, says Parks: "Guess what? Contracting and market leverage do have an impact, even within a particular pharmacy chain. Everything, including the things you thought would all be the same, is not the same."

 

What's next?

Parks has come to view data transparency as more than a means to an end. "It is the starting point toward what I call 'APE' - awareness, place of service, and engagement. Any benefit broker or employer should follow this. First they've got to get their risk pool or employees to become aware that they are accountable for the cost of their care, but that there is also difference in their choices. As soon as they become aware of that, the next piece of this - which has never before been in a benefit plan design or strategy - is place of service. In other words, so now that I know that everything is not $20, what are my place-of-service choices around that pricing? That's where you get the value-based benefit. That place of service is where you have to measure quality, utilization and cost, for the ultimate value."

Once employees realize that they can make those decisions, says Parks, the third piece is engagement. "Having this data is not useful to an employee pool unless it's packaged, presented and targeted in a way in which Joe Sixpack and his covered family members get it," he believes. "It's not just the availability of the data; it's how you 'consumerize' it so that employees and the decisionmakers in their families understand things and become engaged."

Says Cecconi, "Fundamentally we've always believed that the individual will ultimately alter or improve the health care delivery system. It's not going to come from the other way around, or it would have been perfected by now."

For reprint and licensing requests for this article, click here.
Pharmacy benefits
MORE FROM EMPLOYEE BENEFIT NEWS