published on October 7, 2016 - 3:03 AM
Written by The Business Journal Staff
It’s no secret that pharmaceutical costs are on the rise.


Recent outrage over the escalating price for the life-saving EpiPen has not only caused concern among patients in need of the drug, but among members of the general public who are rightly asking where the money to pay for this inflation is coming from. Local experts say the answer is ultimately that money will come from us in the form of increased insurance premiums.  

“Prescriptions in general are becoming more impactful on health plans because of these specialty drugs in particular,” said Fresno insurance broker Victor Gunderson with Der Manouel Insurance Group.

For larger employers, Gunderson said this means potential snags at renewal time and increased premiums or deductibles for employees. Just having one employee on an expensive cancer or Hepatitis C drug can impact the rates of everyone in the group, he said.

“The new Hepatitis C drug is a prime example,” Gunderson said. “It will cure you almost — you have a 98 percent chance of being cured — but those drugs can run up to $300,000, so if you have one or two employees who need to take this drug, it can really have an impact.”

Among smaller groups, Gunderson said there is some protection because they pay community rates based on region and age of each employee, but with widely used prescription drugs like the EpiPen going up in price, likely all health plans will see an increase in premiums.

Valerie Cornuelle, the executive director of California’s Valued Trust (CVT), the state’s largest self-funded PPO public schools’ trust that figures benefit plans for smaller local districts like Kings Canyon Unified and Madera Unified, said insurance carriers and benefit agencies like CVT that bargain with them have some methods for keeping costs down.

First and foremost, she said most plans emphasize the use of generic chemical equivalents in place of brand name prescription drugs.

“If there is a generic equivalent, we require our members to take that and that keeps costs down,” Cornuelle said.

Many employer-based plans use this strategy as well, Gunderson said.

One problem, however, is that many specialty drugs such as the new Hepatitis C drug, many cancer drugs and some drugs for more common afflictions like diabetes and high blood pressure, don’t have generic equivalents. Even when they do, Gunderson said, costs can still be significant.

“We were consulting with an employer that had a self-funded plan and they were concerned because apparently one of their employees was having some liver problems, and a doctor had prescribed a particular medication that was costing $100,000 a month,” Gunderson said.

“By working with a pharmacy benefit management (PBM) company and pharmacist, we were able to find equivalents that would drop the cost to $19,000, but you can see how that can still have an impact.”

In addition to opting for generics, Cornuelle said CVT works with CVS Caremark, a PBM through CVS Pharmacy. CVS Caremark and other PBM’s assist companies in keeping costs down by negotiating with pharmaceutical manufacturers to create a formulary. Basically, she said, if there are multiple drugs to treat an illness, CVS Caremark will strike a deal with one of the companies to use their drug only so long as they receive a substantial discount on that drug.

“The formulary changes annually and this year there will be 35 changes, 10 of which address the hyperinflation going on,” Cornuelle said.

Using generics and the formularies are the only way Cornuelle said CVT is able to prevent dramatic increases in insurance premiums for its members. Currently, she said pharmacy costs are anticipated to increase by 7 percent. That is still higher than its estimated increase for other medical expenses, which is 5 percent.

CVT members, she said, have it better than most because CVT represents 150,000 members. A company with 1,000 employees, she said, would not have the same negotiating power or access to programs and consultants that CVT has.

“If a smaller school district went straight to Anthem, they wouldn’t be able to negotiate lower fees,” Cornuelle said.

Even with strength in numbers, Cornuelle said it is still a struggle to keep pharmacy costs down, and if drug prices continue to climb, the health industry won’t be sustainable.

Some locals are trying to combat big pharma’s price hikes by championing Prop. 61, a ballot initiative that if passed would cap how much the state of California pays for prescription drugs at the same rate paid by the U.S. Department of Veterans Affairs.

Members of the Fresno chapter of the California Nurses Association recently gathered to hand out leaflets about Proposition 61 in the Fresno State free speech area.

“The drug price for the EpiPen alone has gone up over $600 in just the last few months, making it unaffordable for most people in our community,” said Amy Arlund, an RN at Fresno’s Kaiser Permanente. “When people have to choose between their gas and food budget and a life-saving medication for their child, what do you think their choice is going to be? It puts them in a very hard spot.”

Roger Salazar, a spokesperson for Proposition 61, said the proposition is not the “be all, end all” but its aim is to get the attention of the pharmaceutical industry.

“We believe that if the state of California with its purchasing power can pay the same price that the Department of Veterans Affairs, it will save the state about $4 billion and put pressure on the drug industry because other states will want to do the same thing and private plans will want the same discount, asking if California can do it, why can’t we do it?” Salazar said. “It’s out hope that this would start the cascade of drug prices going down.”

California health insurance companies have not taken a stance on Proposition 61.

Cornuelle said she isn’t sure if Proposition 61 is the answer.

“Proposition 61 is attempting to get some control for a small subset of the population, but when you plug a hole in one place, it will come out somewhere else,” Cornuelle said.

Pointing out lower costs for the same drugs in other countries, Cornuelle and Gunderson both suggest the government should look into spreading costs for research and development internationally.

“I’m not a politician and I don’t understand all the political ramifications on an international basis, but if they could spread that R&D over the world as they spread these drugs out all over the world, it would be a lot less costly for us on these specialty drugs,” Gunderson said.

Until then or until some other form of legislation comes along that helps wrangle drug prices, Cornuelle said the best thing employers can do is shop around and find what works best for them and their employees.

“Right now it comes down to what purchasing strategy is best,” she said. “You do the best you can do. Awareness is key, though. I believe the more aware people are, the more we can impact change.”

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