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TMCNet:  Driving Down Rx Costs: 4 Ideas to Consider - Ed Kaplan, The Segal Company

[January 10, 2013]

Driving Down Rx Costs: 4 Ideas to Consider - Ed Kaplan, The Segal Company

NEW YORK --(Business Wire)--

"To lower the cost of prescription drug coverage in a meaningful way, public policy makers should consider more aggressive solutions that produce savings for patients and health care payers, while preserving the incentives for drug manufacturers to continue to innovate," says Edward A. Kaplan, SVP and National Health Practice Leader for The Segal Company.

Mr. Kaplan suggests that in addition to promoting the use of lower cost generics, new ideas to consider include:


Introduce an advertising tax on all drug makers. Introduce a sales tax for amounts spent on marketing and sales that exceed the amounts spent on R&D. If manufacturers continue to advertise, this will be revenue generating for the federal government. If instead manufacturers choose to reduce marketing spending, they may increase spending on R&D.


Create a bid process or reference-based pricing method for non-life threatening drug therapies. The Centers for Medicare & Medicaid Services (CMS) could run an annual bid process for Medicare Part D beneficiaries through which it selects and covers the cost of the top two or three best-value drugs within a therapy class based on price and efficacy. This process would encourage manufacturers to focus on the direct pricing of competing products rather than on rebates, coupons and other complex schemes that inflate costs.


Vary the length of patent protection by therapy classes. New patents for the treatment of a selected list of lifesaving therapy classes should have longer patent lives than drugs that are mainly lifestyle treatments. For example, a breakthrough drug that reduces the risk of dying from cancer would get a longer patent life than a drug that treats hair loss or seasonal allergies. This would force the industry to focus more on critical illnesses.


Develop a reinsurance purchasing program for high-cost specialty medications that can be used by both insurers and self-funded health plan sponsors. CMS should negotiate pricing on specialty medications and allow private sector payers to purchase specialty drug stop loss insurance coverage secured by the federal government. This would stabilize problematic claim liability for many plan sponsors.

Read the full piece, "The Affordable Care Act: Savings for Rx Illusory," by Edward A. Kaplan, Segal SVP and National Health Practice Leader HERE.

The Segal Company ( is an independent, US-based firm of benefit, compensation and human resources consultants. Clients include joint boards of trustees administering pension and health and welfare plans under the Taft-Hartley Act, corporations, non-profit organizations, professional service firms and state and local governments.

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