Healthy Skepticism Library item: 6376

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Publication type: news

Fuhrmans V.
Employers, Insurers Push Generics Harder
The Wall Street Journal 2006 Oct 31

Full text:

Employers, Insurers
Push Generics Harder
As Many Blockbuster Drugs Go Off-Patent,
Some Health Plans Drop Copays for Copycats

By VANESSA FUHRMANS

WALL STREET JOURNAL
October 31, 2006; Page D1

Wielding both carrots and sticks, a growing number of companies are trying harder to push generic drugs on their employees.

At prices often 80% cheaper than those of brand-name medicines, generics have become a key tool for health insurers and employers trying to hold back soaring medical costs. There’s hardly a health plan today that doesn’t use higher copayments on branded drugs as a way to nudge employees toward less-expensive copycat versions.

But as employees re-enroll in benefit plans this fall, many will encounter more-aggressive efforts to make generics the clear-cut choice. Some companies, such as small employers insured by Blue Cross and Blue Shield of Minnesota, have stopped charging any copayment or out-of-pocket cost for generics. Others are taking a different tack, adopting plans that cover only generics, such as a new, less-expensive prescription-drug plan from Medco Health Solutions Inc., one of the country’s biggest pharmacy-benefit managers. And some employers are trying to tee up savings by steering employees onto brand-name drugs that will soon face generic competition.

The concerted push comes in part because the availability of generics is fast reaching a critical mass — and as health-care costs continue to soar, employers and insurers are eager to take full advantage of the generics’ lower prices. Over the past 12 months, four of the biggest blockbuster medicines — the cholesterol drug Zocor, the antidepressant Zoloft, the antibiotic Zithromax and the nasal spray Flonase — have gone generic. Patents for at least 11 more top-selling medicines are expected to expire within the next two years. All told, nearly half of the 60 most commonly prescribed drugs will become available generically over the next four years, at prices that could save health plans and consumers a potential $49 billion by 2010.

“In 20 years we’ve never had an opportunity like this, in terms of so many generics available in such a broad number of therapeutic categories,” says John Malley, a senior pharmacy-benefits consultant with employee-benefits group Watson Wyatt Worldwide. “Everyone’s trying to best position themselves.”

Generic drugs are required to be the exact chemical equivalent of their brand-name counterparts. They have the same effect in the body as branded medicines, experts say. Many companies already have incentives in place to encourage employees to use generic drugs. But these milder measures have maxed out their savings potential.

Though 53% of prescriptions are filled with generics today, health-care experts say billions of dollars in savings are left on the table each year. For example, the antiheartburn pill Prilosec, once a prescription-only best seller, is now available in inexpensive over-the-counter and generic versions. But Nexium, a successor drug that’s nearly identical to Prilosec, still racked up U.S. sales of $4.3 billion last year for its maker, AstraZeneca PLC. That was almost a 15% increase from the year before. UnitedHealth Group Inc. recently became the first health plan to stop coverage of Nexium altogether, saying that there were plenty of less-expensive equivalents to choose from.

Many health-care consultants and insurers are now urging employers to steer employees toward generics even when the brand-name drugs the patients are taking don’t have direct equivalents. Pharmaceutical makers and some doctors argue that the strategy may force some people to take medicines that don’t work as well for them. But a number of studies indicate that with many drug types, a majority of people get the same health benefits when they switch to a generic from another brand-name drug within the same group, even if it’s not the direct brand-name equivalent.

The anticholesterol drugs called statins, one of the costliest categories, are a popular case in point. Copycat versions exist for Pravachol and Zocor, but not for Lipitor and Crestor. Health plans argue that while more than 70% of patients’ statin prescriptions could be filled with generics, only 31% actually were in the third quarter of this year, according to health-care-data firm Wolters Kluwer Health. “That’s the real savings opportunity,” says Ron Fontanetta, a principal at employee-benefits consulting firm Towers Perrin.

Many private employers are taking their cues from public health plans. Faced with budget crunches, public payers were among the first to ratchet up their generic-drug strategies. Three years ago, South Dakota’s state-employee plan began requiring employees taking a brand-name drug to pay a copayment if a generic alternative was available plus the difference in the drug’s price. In 2005 the difference between a brand-name and generic drug averaged $84, according to Blue Cross and Blue Shield of Minnesota.

In some cases where no direct generic equivalent exists but one for a similar drug does, employees must have a doctor document the reason for taking it. “It’s pretty arduous and they don’t like it,” says Mary Weischedel, director of South Dakota’s plan. The point of the requirement: to make the employee consider taking a generic instead.

South Carolina’s state-employee plan has a similar pay-the-difference policy. What’s more, employees enrolled in the state’s lower-premium, $3,000-deductible plan option can’t apply the price difference for the brand drug toward their deductibles. Since the policy went into effect in 2002, generics have gone from 34.8% to 49.9% of prescriptions. The state says most participants have chosen to switch their medication rather than be saddled with the extra cost.

Medco is launching a drug plan for smaller employers that goes a step further. The plan covers up to a 90-day supply of nearly 2,000 generic drugs for a $10 copayment, but consumers have to pay Medco’s negotiated prices for any brand-name and specialty drugs. A 90-day supply of brand-name Zocor costs $406.99, for example, whereas the same supply of allergy pill Allegra costs $221.36.

Medco says the plan, sold also by Nationwide Mutual Insurance Co., is aimed at businesses who otherwise wouldn’t be able to afford any drug plan. By covering only generics, the company says it can sell the plans for between $600 and $700 per plan member a year, half of what its traditional plans cost.

Blue Cross and Blue Shield of Minnesota is taking a more reward-driven approach. As of July, it began providing free coverage of generics for all of its small-employer plans. Larger companies have the option, too. The goal, says Al Heaton, Blue Cross’s pharmacy director, is to increase the generic share of prescription drugs to more than 70%. Dropping copayments will pay for itself, he argues, since experience suggests that for each percentage-point increase, drug costs fall by nearly the same amount.

The strategy already has had some measure of success. In January the insurer tried it first on the 1,100 employees of its pharmacy-benefits manager, Prime Therapeutics, and the percentage of generic prescriptions filled rose to 68.6% from 56.2% in eight months.

At Zumbrota Ford, a dealership in southeastern Minnesota, owner Steve Johnson says he’s already changed two prescriptions, one for a bee sting, the other for a sinus infection. Though he was prescribed brand-name medications, “I mentioned my no-copay alternative and got it changed,” he says, saving at least $70 in copays in the process.

Eastman Chemical Co. own pharmacy at its Kingsport, Tenn., headquarters in 2003, in part to help steer more than 30,000 employees, retirees and dependents toward low-cost generics. “We know the pharmacists will make sure to remind them,” says Phil Belcher, manager of Eastman’s health and pharmacy plans.

The company says that for certain drugs it will start requiring “step therapy,” in which employees starting a medication have to try a plan-preferred drug before going to what might have been the doctor or patient’s first choice. The idea is to push more employees toward the brands that are about to go generic, such as the sleep aid Ambien, in the coming year. Once it goes generic, it will be easier to encourage them to switch, Mr. Belcher says.

Write to Vanessa Fuhrmans at vanessa.fuhrmans@wsj.com