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Nov
29

It’s Utilization, &^%())!!

“Utilization changes are the driving force in drug cost changes for WC.”
That’s the key takeaway from the expanded version of NCCI’s annual WC Prescription Drug Study; this 2007 edition goes well beyond prior editions to include more detailed information on cost drivers, stat-by-state variations, generics, and the growth in drug spend during the life of the claim.
But the key is utilization.
The key takeaway? Utilization, not price, is driving drug spend.


On page 5 of the study, NCCI provides a chart graphically illustrating the impact of utilization v price – it isn’t even close. Far and away, utilization has the greater effect on total drug spend.
What does this mean for you?
If you want to control drug cost, don’t select a PBM based on price. If their price is cheap, they can’t afford to control utilization.
Thanks to George Furlong of Bunch for sending the brief along.


One thought on “It’s Utilization, &^%())!!”

  1. I could have told you that utilization is the largest inflationary factor in the healthcare world. I recently authored the annual report for a client which experienced a 35.3% growth in PMPM drug spend over a single year. Overall AWP increased by 9.2% and the overall member share decreased by 0.6%. 27.5% of the increase was driven solely by utilization.
    And you hit the nail on the head with this comment: “If you want to control drug cost, don’t select a PBM based on price. If their price is cheap, they can’t afford to control utilization.”
    (Sorry to go off topic, but I have a highly relevant point.)
    In my opinion, utilization is a very big reason why nationalized healthcare (in a socialized system, i.e. Medicare for everyone) will not be able to control costs in the US. Many/most socialized medicine supporters point to administrative costs as a surefire way to reduce healthcare expenditures. That point of view makes the assumption that administrative costs contribute nothing to controlling total spend and are, in fact, part of the “healthcare crisis”. The statement which you made, and I can prove to be true, is in direct conflict with one of the most widely believed arguments for nationalized healthcare.
    If those “unnecessary” administrative costs are eliminated then I can guarantee that Medicare (or whatever you want to call it) will see the same kind of PMPM inflation as my client.
    If the services which drive those administrative costs are simply shifted to a different payor (a single payor) then what did we accomplish? Can HMO’s, PBM’s, MCO’s, and TPA’s not administer their own programs for their own clients? (Rhetorical)
    Sorry for the rant.
    -PBMGuru

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Joe Paduda is the principal of Health Strategy Associates

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