MANAGED CARE

Rebates, market share, co-pays:
A changing relationship

The tens of thousands of dollars in rebates pharmaceutical companies are now paying to managed care organizations don't make much sense. That's the contention of Gordon Carey, a consultant with McKinsey & Co.

How so? Carey explained that rebate levels are now tied to formulary access and the market share that MCOs can garner for drug companies' products. The higher the volume MCOs can generate for manufacturers, the greater the rebate they can expect to receive. The trouble with this strategy is, while it worked in the past, it doesn't fit well anymore now that many health plans are giving consumers fewer restrictions, a choice of drugs, and open formularies.

Indeed, many health plans are offering consumers drug choice as long as they share part of the cost in the form of three-tier co-pays. Some MCOs, such as Express Scripts and Humana, are even offering four- or five-tier co-pay systems.

With their ability to move drugs into different co-pay levels, MCOs have considerable room to negotiate with drug companies. An interesting consequence is that health plans that have hitherto exerted minimal control over their drug benefit can now negotiate with drugmakers over their co-pay status with as much power as their counterparts that have maintained strong control, such as staff-model health maintenance organizations. Brand manufacturers must negotiate with MCOs over whether their product should go in the middle or top tier and bear a co-pay of, say, $15 or $25. As a result, there has been a leveling of the playing field between high- and low-control MCOs in terms of their influence over drug companies, Carey observed.

A corollary of this is, at present, manufacturers spend a great deal of time determining the list price on their products. But consumers in managed care plans don't know drugs based on their list prices, only their co-pays. So, in effect, it's the MCOs and pharmacy benefit managers that are setting the prices of drugs by selecting their co-pay levels. This is a new development that Carey isn't sure many drug companies have grasped yet. The consultant gave his remarks at a recent workshop sponsored by The Zitter Group in Parsippany, N.J.

Judy Chi

Judy Chi. Rebates, market share, co-pays: A changing relationship.

Drug Topics

2001;22:39.