7 States Wasting the Most Money on Medications

Are your neighbors throwing away tons of money? Express Scripts (NASDAQ: ESRX  ) says that they probably are. The giant pharmacy benefits manager, or PBM, recently published information that shows how much each state wastes the most in unnecessary medication-related costs. 

Express Scripts' definition of wasteful spending included three categories. First, some patients use costly prescription drugs when less expensive but clinically comparable alternatives exist. Similarly, patients who don't use home delivery and specialty pharmacies when appropriate can forego significant cost savings. Lastly, patients who fail to adhere to medication therapies rack up unnecessary medical expenses.

Here are the seven most wasteful states on a per capita basis for medication spending in 2012:

Source: Express Scripts 

Common denominators
One thing that immediately jumps out is that all seven of the most wasteful states when it comes to medication spending are in the South. 

These states have something in common other than geography, though. The Centers for Disease Control and Prevention conducts surveys routinely to determine the health status of Americans. All seven of the states identified by Express Scripts as most wasteful with regards to medication spending rank near the bottom in the CDC's health status survey.

Source: Centers for Disease Control and Prevention 

Several of the states also share another common denominator. All but Texas rank among the lowest states with regards to median household income. 

Source: U.S. Census Bureau 

The states that rank among the most wasteful when it comes to medication spending are highlighted in red on both charts -- and there is plenty of red as you can see. So why would health status and household income levels impact medication spending waste?

Higher consumption of any product provides more opportunities for inadvertent waste. It stands to reason that states with fewer residents reporting good health would also have more residents taking prescription drugs. The more prescription drugs taken creates more potential for waste.

Linking household income to higher levels of wasteful medication spending is a little trickier. One possibility is that Americans with lower incomes don't have access to the information that could help them make more cost-effective choices regarding prescription drugs. For example, many insurance companies provide information about generic drug alternatives online. However, if individuals don't have Internet access, that information doesn't help them.

Trash to treasure?
What difference do these factoids make for Motley Fool readers looking for investing ideas? I think these findings actually point to some good stocks to consider.

Total wasteful spending in 2012 amounted to around $418 billion. This means that there is great potential for reducing these costs. Companies that can help achieve this potential should do well in coming years.

Perhaps the best-equipped company to do so is none other than Express Scripts itself. It's the largest pharmacy benefit manager, or PBM, in the country with extensive research capabilities to identify the most effective ways to tackle this wasteful spending. Express Scripts isn't the only strong player, though.

CVS Caremark (NYSE: CVS  ) operates pharmacies across the U.S. but also stands as the second-largest PBM. The company boasts a strong mail delivery business, which is an important advantage in addressing waste related to patients not using the most cost-effective pharmacies.

UnitedHealth Group (NYSE: UNH  ) isn't just the largest managed care organization in the nation. The company also runs the No. 3 PBM with its OptumRx unit. This presents a dual opportunity for UnitedHealth. It can educate insured members as well as influence patients to spend more wisely through its PBM business.

Another pure-play PBM is Catamaran (NASDAQ: CTRX  ) . The fourth-largest PBM has been very successful in promoting use of generic alternatives to higher-cost prescription drugs. Catamaran should see success in picking off business from smaller PBMs.

I actually think that investors wouldn't go wrong with any or all of these stocks. However, my favorite is Express Scripts. I think the company's scale gives it a considerable advantage. That's an edge that you can bet won't be wasted. 

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Read/Post Comments (11) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 11, 2013, at 1:29 PM, 101st wrote:

    LOL....all red states

  • Report this Comment On May 11, 2013, at 2:02 PM, FLOYDINFLORIDA wrote:

    Sounds like pills don't work,

    As they are not any healthier or richer?

    OR

    They are too poor to afford health care so they

    take a pill instead?

  • Report this Comment On May 11, 2013, at 2:06 PM, FLOYDINFLORIDA wrote:

    So Screaming S

    Using your logic if they were all Good little Democrats we would not have this problem?-

  • Report this Comment On May 11, 2013, at 2:37 PM, bciii2011 wrote:

    That's because most of the souths population is the elderly retired which need more meds at that age. You never hear of anyone retiring and moving North. 99% of people move south to retire. Better acommodations for the elderly, warmer weather, healthier, lower taxes and less crime ( i could go on and on about the benefits of moving South, but you get the picture).

  • Report this Comment On May 11, 2013, at 3:51 PM, rbyteme wrote:

    What a hugely disingenuous article. First, I am a UnitedHealth subscriber, and while I absolutely love their plan, OptumRx is the worst pharmacy I have ever dealt with. The clearly minimum wage customer service reps don't know the dif between a generic and a brand name. Dealing with them is an exercise in patience. Plus, if you have a patience assistance card to get a discount on a copay, you can't use it with a mail order Rx, which often demands you buy 3 months up front..if lucky, you can submit paperwork to the mfgr. and get a refund maybe 3 months later. But if instead of the $10 at the local Rx, you don't happen to have $50 or $150 for the 3 mo supply, you are screeeeewed.

    Additionally, the "waste" due to not using cheaper alternatives is very speculative. I have been taking Lunesta for several years now because it WORKS, but UnitedHealth and other plans firmly believe generic Ambien works just as well...but it does NOT work, not for me anyway. Why would anyone pay more than they have to unless it is with good reason? Unless you have proof positive that all these brand-name expenditures are due to people are not using alternatives out of ignorance, and not because the alternatives fail to do the job, then don't try to pass this article off as fact.

  • Report this Comment On May 11, 2013, at 5:25 PM, kat2010 wrote:

    I live in Mississippi. I for one am SICK AND TIRED of our insurance carrier (AND ALL insurance companies!!!) attempting TO TELL ME WHAT MEDICATIONS I should have INSTEAD OF WHAT OUR DOCTOR ORDERS!!! I AM SICK TO DEATH OF INSURANCE COMPANIES FEELING ENTITLED to ALSO tell me WHERE I should be having my scripts filled (they want me to fill 90 days via U.S. Mail), and I AM SICK AND TIRED OF INSURANCE COMPANIES TELLING ME I ONLY NEED 50 DIABETES TYPE II TESTING STRIPS WHEN I NEED TO TEST MY BLOOD TWO TO THREE TIMES A DAY, AS I AM NEWLY DIAGNOSED AND MY Physician and I/ WE ARE STILL IN THE PROCESS OF GETTING MY MEDS RIGHT to control the diabetes!!! I give absolutely NO CREDIT to THIS article BECAUSE both I and my doctor KNOW MORE than all the insurance companies and 'authors' in the world!!!

  • Report this Comment On May 11, 2013, at 5:51 PM, Hjin wrote:

    Horrible article. First, correlation is not causation. Second, PBM describe "waste" as not choosing the cheapest alternative? That's because more expensive drugs require more reimbursement from PBMs so they want patients to take the cheapest rather than the most effective medication. Third, the most over-medicated cities, i.e., taking medication such as antipsychotic, anti-anxiety, antidepressants, and antibiotics needlessly are all blue states. In fact, MRSA and other hospital-born superbugs all plague blue state hospitals far more than red states. How do I know this? I am a district manager for a large national drugstore chain and I deal with PBMs on a daily basis along with prescription drug use statistics.

  • Report this Comment On May 11, 2013, at 11:44 PM, TMFFishBiz wrote:

    I absolutely agree that correlation does not automatically tie to causation. That's why the article provided plausible reasons for how the correlating factors could also be causal factors.

    Express Scripts' study included three types of wasteful spending. One of these was where patients chose a more expensive drug when a clinically equivalent less-costly drug was available. I know that for any given drug, some could argue whether or not another drug is truly clinically equivalent. However, my hunch is that most of the cases were scenarios where patients bought brand drugs when a generic using the same active ingredient was available.

    The use of red to highlight the seven states wasn't meant in the political sense whatsoever. Actually, the states' bars are colored blue in the first chart! For what it's worth, the 7 states that are least wasteful according to the Express Scripts study have a mix of politically red and blue states.

    Thanks for reading and taking the time to comment.

    Keith

  • Report this Comment On May 12, 2013, at 12:06 AM, healthyinMN wrote:

    I've worked in healthcare for more than 40 years in MN. Many health systems in MN, intenionally ask Physicians to presribe Generic drugs. The reason is to keep the cost down for our patients. we also have arrangements with larger Pharmacies such as Walgreens, Walmart and Target, to dispense Generics whenever one is available.

    Patients should always ask for generics, unless their Physician specifically orders a Brand Name drug.

    Clinics should stop taking free Brand Name drugs from Drug companies, because the reason drug companies give out samples, is to get patients hooked on the costly Brand Name drugs.

    What more can we do as a nation, is to have the White House and Congress press drug companies to sell Brand Name drugs to Americans at the price they get overseas. Veterans Administration has such an arrangement with drug companies.

    I was in South America, and the same US drugs were selling for pennies on the dollar.

  • Report this Comment On May 12, 2013, at 12:26 AM, healthyinMN wrote:

    Kat 2010

    You make an excellent point...your care should be directed by you and your Physician. My greatest frustration with our healthcare system, is that Insurance Companies have tied the hands of our medical experts by determining what they are willing to pay for.

    The Affordable Care Act's intent for the Healthcare Exchanges, is to force the hands of the Insurance Companies to be transparent with cost and the benefits for the cost, since it will take an act of God to stop Insurance Companies from controlling healthcare decision making. The Exchanges will give us a chance to buy what each of us believe would be best. Always check the Formulary before you buy

  • Report this Comment On May 12, 2013, at 7:41 AM, Dadw5boys wrote:

    don't be fooled these Medical Groups are Corporations that need a profit every quarter.

    With a large population of elderly they can milk like ATM's. They have office staff who work the phones keeping the foot traffic high with old people getting 3 or 4 unneeded blood and urine test each year all billed to medicare.

    if they do have a complaint they get a pill with instructions if that one does not work to come back for a different pill.

    That Health Care !

    Medical Care they can't afford so they got Health Care taght to Doctors by Insurance Companys.

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