Horstman: Drug-buying coalition looks to spread low prices
By Brian E. Clark
A little more than a year ago, backers launched the drug purchasing coalition WisconsinRX with considerable fanfare.
The effort was the brainchild of Al Jacobs, executive director of the WEA Trust. The trust is the stateís largest not-for-profit health insurance company and provides coverage for about half the stateís teachers.
WisconsinRX signed up the Fond du Lac Area Businesses on Health and the Employer Health Care Alliance for what was labeled as a private sector answer to skyrocketing drug costs, which were increasing at a rate more than 20 percent annually.
Foremost Farms of Baraboo, Stoughton Trailers, Warren Industries in Racine and a half-dozen other companies later joined the cooperative. They were enticed by projected savings of up to 15 percent on drug costs.
But the effort stalled in 2004 and plans to enroll 1 million members - which would have given the cooperative hefty clout in dealing with drug companies Ė went unfulfilled.
In November, WisconsinRX hired insurance veteran and Republican activist Greg Horstman, 44, as executive director and CEO of the cooperative. He replaced Carol Brooks, a WEA Trust official and pharmacy specialist, who headed the program for a year.
Horstman, a former deputy director of the state Department of Regulation and Licensing in the McCallum administration, was an executive with WPS Health Insurance for nearly 20 years. WisBusiness.com editor Brian Clark spoke with Horstman at his office in mid-December.
Brian Clark: How many members does WisconsinRX have now?
Greg Horstman: We have 180,000 now and would like to have 400,000 by this time next year, though the figure could be much higher.
Clark: What caused the hiccups that slowed your growth this year?
Horstman: A year ago, there was a big splash. It was going to be huge. The governor wrote a congratulatory letter endorsing this concept. Public sector groups said this was the right way. Private sector employers signed on and there were positive editorials in the papers.
But there also was some skepticism among people who didnít know what it was. They figured it must be part of the WEA Trust, which is one of the founders. We appreciate that the WEA Trust gave us incubator space at reduced cost, but we need to be independent and will be moving out next year so we can stand on our own.
Clark: And those hiccups?
Horstman: Our growth was delayed because the company that WisconsinRX contracted with was purchased by another firm. The change occurred after the agreement was negotiated with WisconsinRx, but before the legal agreement had been signed. So it took forever to get the lawyers to finally agree on the contract for WisconsinRx, during which time a lot of marketing efforts were put on hold.
WisconsinRX had decided to go with Advanced PCS, which was purchased by Caremark. It was a $6 billion deal that created the nationís second largest pharmacy benefits manager (PBM).
Advanced PCS went after this extremely aggressively, not only with pricing, but commitments to make the whole pricing process transparent and take the sides off the PBM ďblack box.Ē
The criticism of PBM is that there were lots of little buckets through which they could skim a little off here and a little off there. It added up and no one on the outside knew what was going on. But Advanced committed contractually to open all that up. They said ďweíll make some money, but we will show you to the penny where we are making it on your business.Ē
This was all new for Caremark and was a merger of two major two major companies, each insuring 75 million people in the United States on the pharmacy side. Coming together was a huge undertaking. It caused some delays. I would guess it set things back six months.
It also set back new sales opportunities and getting out and hiring a CEO who would take the program to next level. In a lot of ways, this past year spent minding the store. I wasnít hired to mind the store. I was hired to build the business.
Clark: Tell me about your background.
Horstman: Iím a native of La Crosse, went to school at UW Madison and earned a degree in economics. I was at WPS Health Insurance for 17 years in sales and administration capacities.
In 1988, I became vice president of sales for the southeastern half of the state. I was also vice president for direct writing.
I left WPS in 2001 to be deputy secretary at the department of Regulation and Licensing under Gov. McCallum. I was there for about 18 months and we all know how that ended. It was a good sabbatical from the insurance world for me.
I went back to the private sector to work for a third-party insurance administrator. I did that until the WisconsinRX folks approached me. Iím now in my fourth week, but still no business cards. (Grimace.)
Clark: What attracted you to this job?
Horstman: My background is perfect for it. This organization needs to grow in the same arenas in which I was successful for 20 years in my insurance career. I know the brokers and consultants. I know the needs of large employers and I know how to balance all the competing interests of the unions, private employers, human resources departments and boards of directors.
Secondly, I liked the cooperative concept of WisconsinRX, even if it comes from a different cloth and perspective than I come from.
It has the ingredients to become the largest pharmacy purchasing coalition certainly in the state of Wisconsin and even expand beyond that.
We are a fledgling company and in a lot of ways, we are truly a start-up. Iíve got the opportunity here to be responsible for balancing out all aspects of the marketplace, to negotiate with a PBM and to take us into the broker world.
Also, I liked the fact that this is a private sector solution. Iím not a big one for government solutions.
Clark: What are the goals of WisconsinRX?
Horstman: Control the cost of prescription drugs, ensure high quality drug care for employees, have honest pricing with no hidden costs, provide access to participating pharmacies across the state, offer a high level of service and be a watchdog over business practices of drug companies and pharmacy benefit managers.
Clark: How does WisconsinRX save money for members?
Horstman: Volume purchasing for higher discounts, lower administration fees, higher rebates, auditing of the pharmacy benefits manager to ensure a full pass-through of all discounts and member access to an evidence-based preferred drug list.
Clark: What is an evidence-based preferred drug list?
Horstman: A list of preferred medications to treat a condition or a disease. The list is based on sound clinical evidence and not how much money is spent on advertising. When there are equally effective drugs available, cost will determine which drugs go on the preferred list.
Clark: Who determines clinical effectiveness?
Horstman: Wisconsin-based doctors and pharmacists will review the clinical evidence and agree on which drugs are appropriate for the list.
Clark: Do you think your work with the McCallum administration and in the private sector gives you credibility with companies?
Horstman: Absolutely. I think my background helps overcome the impression that we are an arm of the WEA.
Clark: Why is a drug purchasing cooperative necessary?
Horstman: Over the last decade, drugs have escalated a great deal in cost. In part because of the development of new, life-saving pharmaceuticals. Advertising has also driven costs up, and Iím not sure if thatís all good. Drugs have become a much bigger part of the healthcare dollar. When I started in this business, drugs were a percentage point. Now, in 20 quick years, itís not uncommon for them to be 20 cents on the dollar.
It was once 50-50 between doctors and hospital costs. Drugs were insignificant. Now itís a big part of the cost. Healthcare costs are escalating much more rapidly than the rate of inflation and drugs are going up two to three times faster than the average cost of health care. It absolutely needs to be controlled.
Also, no one knew how PBMs worked.
Many were started by drug companies, which was a clear conflict of interest because they were supposed to negotiate with manufacturers.
The whole thing was so convoluted with administrative fees and dispensing fees and potential rebates and price off of average wholesale price (AWP) deals. AWPs were often called ďAinít Whatís Perceived.Ē There were fees paid for collecting demographic data so the manufacturer would know who was using what drugs, usersí health and how to target their advertising. PBMs made money every step of the way. It was legal, but over time, PBMs got a pretty bad name. Now, weíve forced them to take the blinders off.
Clark: Can small employers be part of WisconsinRX?
Horstman: They can if they are self-funded. If they are fully insured, their insurance carrier already has a drug benefit. The only way they could take part is if their insurance company chooses to take part. Thatís why insurance companies are a target for us.
Clark: Do you want to tweak the program at all?
Horstman: No. Iíve spent more than seven weeks looking at it and I donít think there is a thing in the contract to be tweaked. What we need to do is correct the perception issue and market ourselves so we can grow.
Clark: Is WisconsinRX based on any existing models?
Horstman: This is unique in the pharmacy arena because it is public and private sector working together. Thatís not common. Usually WEA sits across from the school board administrator and somebody gains and somebody loses. Itís not your typical bargaining model. Both sides are now asking how do we tackle the healthcare cost problem because a big chunk of union workersí and private sector employeesí salaries are going to health care benefits. If you can prevent significant drug cost increases and provide quality health care, everyone can benefit from that. We donít need to be beating each other up, while someone is skimming money off the top.
Clark: Do you see the cost of drugs moderating?
Horstman: They did moderate a little in the second half of 2004. I think they will start picking up again, though. There will be continued escalation. Advertising is not abating and there is pressure from liability and litigation that all gets passed on to those who buy drugs. I donít know how to get back the water thatís gone over the dam, but you can slow down the stream to a trickle, hopefully.
Clark: Are savings returned to workers?
Horstman: They are all dollars on the table. Before they were falling off the table and somebody was running out of the room with them. Now, union and management or private companies can decide how the pot of dollars saved will be divided up. This means the pot will be a little bigger than it would have been.
Clark: Do you think this will help companies to keep offering healthcare benefits?
Horstman: Definitely. Some wonít continue if itís too expensive. Healthcare expenses are also a factor in considering expansion or hiring new employees.
Clark: What does it cost for a company or public agency to offer health insurance?
Horstman: It could be as much as $8,000 to $12,000 for a family contract. And 20 percent of that cost could be for drugs. Not workersí comp, not social security, just private sector health care. If an employee is paying $300 a month for a family contract, his or her company is probably paying twice that.
You might see more and more companies saying this is overwhelming. Until there is some solution, they might go to employees and say ďhere is $500 cash, get your own health insurance.Ē If they canít find it, they are out of luck.
Clark: What do you do when you arenít thinking about drug costs?
Horstman: Iím still very political active. Iíve been an activist within the Republican party for many, many years.
Clark: What do you want for Christmas?
Horstman: Business cards. Iíve been told Iíll get them by Friday. Iím keeping my fingers crossed.
Note: For more information on WisconsinRX, call (608) 204-9479 or look up www.wisrx.com.