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Refilling a need: thanks to a growing number of generic drugs, health plans are better able to manage prescription costs.


When Leviton Manufacturing Co. Inc., a North American producer of electrical and electronic products, wanted to provide its employees some refuge from rising health care costs, it promoted the use of generic drug alternatives.

One of the most recent efforts includes participation in Blue Cross and Blue Shield of North Carolina's Medication Dedication program, in which copays are waived on all generics that treat congestive heart failure, high blood pressure, high cholesterol and Type 2 diabetes.

Now, Leviton is seeing a more than 60% generic utilization rate among its 3,500 employees, which exceeds the national average.

That generates into significant cost savings for both employees and the company, said Fran Ruderman, senior director of benefits and compensation.

Savings are becoming more widely recognized. In 2007, commercially insured Americans and benefit plan sponsors saw nearly a $5.2 billion savings in prescription drug costs thanks to greater use of generic drugs, according to pharmacy benefit manager Express Scripts.

That year, the average cost of a prescription increased by only $1.09, to $54.34. Without what Express Scripts calls the "generic effect," the cost per prescription would have increased $3.58, to $56.83.

In 2007, generic drugs accounted for 65% of prescription drugs dispensed, according to pharmaceutical market intelligence company IMS Health.

Today, a host of brand-name medications along with many blockbuster drugs sit in the pharmaceutical pipeline, ready to lose patent protection over the next couple of years.

Each year, generics save consumers an estimated $8 billion to $10 billion at retail pharmacies, and even more when hospitals use generics, according to the Congressional Budget Office.

That's good news as prescription drug use continues to climb. An Express Scripts study found the number of people with at least one prescription increased from 67% to 74% between 2000 and 2006.

That growth is taking a toll on the health care system. The fifth annual Milliman Medical Index said the cost of health care for the average U.S. family with employer-sponsored health coverage will increase more than 7% this year due in part to rising prescription drug prices.

While the average copay for preferred brand-name drugs increased by $4.52, to $19.18 between 2002 and 2007, according to Express Scripts, the average copay for generics increased by only 86 cents, to $7.57 during that time frame.

Generics also are having a big impact among seniors. A recent study by Wolters Kluwer Health Source, which provides market data and analytics for pharmaceutical and biopharmaceutical manufacturers, found that generic drugs now own 63% of the Medicare Part D market, up from 50% less than three years ago.

But, are generics safe and effective alternatives? The FDA definitely thinks so. Generics undergo a rigorous scientific review to ensure that they're high quality, safe and effective. Generic drug manufacturers must demonstrate that a generic has the same dosage form, strength, route of administration, conditions of use and bioequivalence (the drug delivers the same amount of its active ingredient in the same amount of time as the brand drug) as the approved brand-name counterparts.


Health plans are helping members make the switch.

"It begins with benefit design," said Jackie Kosecoff, chief executive officer of Prescription Solutions, a UnitedHealth Group-owned PBM. "Many encourage members to use genetics. In 2008, many of our Medicare programs moved to a zero copay when members choose to purchase drugs through our preferred mail-service facility."

A recent survey by consulting, outsourcing and investment services provider Mercer found that most employers use tiered copayments for their prescription drug benefits. The most common arrangement is a three-tier structure with increasing copay amounts for generics, formulary brand names and nonformulary brand-name drugs.

Leviton's plan design follows a slightly different model. Employees pay a $10 copay for generics, $25 for preferred brand drugs, $50 for nonpreferred drugs, and has a fourth tier for specialty drugs that has a $100 maximum copayment.

As part of its aggressive Medication Dedication program, Blue Cross and Blue Shield of North Carolina not only waived copayment for generics but also moved more than 40 drugs to treat chronic diseases, such as Glyset and GlucaGen for diabetes, from tier 3 to tier 2.

The Blues plan also is working with its PBM Medco Health Solutions' clinical pharmacists to educate Blues providers about generics. "The targeted practices that had at least comparatively lower generic dispensing rates versus total book of business are visited, and this year so far we've seen a four-point improvement in the generic dispensing rate for those practices," said Brian Ellison, director of pharmacy administration.

The compilation of efforts is paying off. Today, North Carolina Blues' generic dispensing rate is hovering near 64%, he said. "If the average price of a generic is about $20 versus a comparable brand at around $120, anything you do to make members switch will save money on your total spend."

One of its Blues counterparts, Blue Cross and Blue Shield of Rhode Island, recently wrapped up its yearlong "OTC Options" pilot program in which more than 4,600 members received over-the-counter allergy drugs, such as loratadine--the generic form of Claritin--free of charge. Members saved nearly $260,000 in copays, and the plan had a prescription drug cost reduction of more than $250,000, compared with the previous year's costs.

The plan also is bringing providers into the loop. In 2005, it began installing MedVantx Sample Center units, an ATM-like machine that provides free generic medical samples, in participating physicians' offices.

In July, Independence Blue Cross began waiving copays until the end of the year for 75 generic drugs for chronic conditions for its members and AmeriHealth of Pennsylvania subscribers. The Blues plan expects to waive about $12 million in copays. Earlier this year it began offering employers plans with zero copays for generics.

Employers also are becoming more genetics-minded, said Kosecoff. "They're aware of the value proposition inherent with the use of these alternatives. For them, the decision is the extent to which they want to motivate that."

Savings in a Bottle

Are efforts paying off?

Regence's robust decision-support tools for physicians and patients have "moved the needle significantly," said spokesperson Angela Hult. Members' generic fill rate is 66.2%, well above the national average, and its nearly 8,000 employees have set the bar even higher with their 68.8% fill rate, she said.

"Each percentage point represents savings of up to $19 million. Since 2000, our 3 million members have saved themselves $530 million," she said. "That's $530 million in medication costs we didn't have to raise premium rates to cover."

Switching to generics often can cost anywhere from 30% to 80% less than brand-name treatments. That's because generic manufacturers don't have the investment costs of developers of new drugs, which are developed under patent protection.

To put savings in perspective, Tara Higgins, a clinical pharmacist with the Rhode Island Blues plan, said the cost of a 30-day supply of heartburn and acid reflux disease medication Nexium may average about $165. The genetic alternative costs only about $30 per month.

"We try to promote generics in a way that members share in the economic gain along with the health plan," said Kosecoff. "Consumers share twice because we make the cost of drugs lower and generics help keep premiums from rising."

There's also long-term cost savings, said Ellison. "When you look at total medical spend, if someone is taking medications as prescribed, that means the likelihood of having a major event like a hospitalization or ER visit is greatly reduced for five years out."

Plans are feeling the effects. Cigna Pharmacy Management has innovative programs that empower individuals and physicians to take advantage of the cost savings of generics through appropriate and timely education, incentives and encouragement. "Through these programs, we have improved the use of genetics by more than 20% over the past five years for both our clients and the individuals we serve, leading to one of the industry's leading genetic dispensing rates:' said clinical pharmacist Yi Zheng.

Today, Cigna's generic dispensing rate for its book of business is approaching 67% and the rate for its Medicare Part D business is 70%, said Zheng. "This is significant as every 1% improvement in the GDR results is about a 1% reduction in overall pharmacy cost for the aver. age employer."

"Generics are the largest single area of focus for our clients in terms of saving money, driving out waste and improving affordability of benefit without compromising health care," said Dr. Ed Weisbart, chief medical officer for Express Scripts. He said the company's generic fill rate tops 65%.

But he hopes that rate will soon exceed 80%. "Learned financial incentives such as copays, tiered structure and step therapy have gotten us to the 65% success rate, but the other 15% gap will require more than just incentives. They'll involve social norms ... we need to match up specific messages with predictable audience segments," he said.

"For instance, more than 30% of people who received letters from us about drugs going generic made the switch, but nearly 50% of our mail order customers who knew our brand choose the generic form. The difference? We had permission to talk to them."

Savings don't happen overnight, said Higgins. "For the first six months after a generic becomes available, due to generic exclusivity, the cost is still relatively high, usually about 10% to 15% off the branded drug. Costs then dramatically, decrease."

Pharmacy Pipeline

There's more good news on the horizon.

A number of drugs that total billions of dollars in current drug spending could lose patent protection over the next five years. Some of products expected to come off patent in 2008 include Sarafem for premenstrual dysphoric disorder, Depakote for seizures, Cipro HC for external ear infections, and Dovonex for psoriasis.

The following year, Prevacid for acid-related disorders is expected to go generic, said Weisbart. And the industry is anxiously awaiting the loss of patent protection of cholesterol-lowering agent Lipitor, Effexor XR for depressive and panic disorders, Cozaar for hypertension, and Flomax to reduce male urinary symptoms in 2010, he added.

What the Doctor Ordered

Is awareness of generics growing?

"Yes," said Ellison. "We take every opportunity to explain to members the value of generics. We're competing against direct-to-consumer drug ads, so we have to be consistent and unrelenting in our message to tell them generics are effective and save money."

That's working, he said. "More people are hearing the message and heeding it."

That's also important to help increase medication adherence, he said. A 2008 Kaiser Health Tracking Poll found that 23% of Americans didn't fill a prescription in the past year because of cost.

Providers also are making the switch, Ellison added. "That's where our e-prescribing initiatives come into play to make sure they have the tools and information at their fingertips at the prescribing moment to know what alternatives to prescribe."

Experts also are watching the potential for biologic drugs to someday enter the generic arena, which would offer significant savings to the industry. Biologics--drugs derived from living sources such as humans, animals or microorganisms and grown in specially engineered cells as opposed to drugs synthesized using chemical reactions in the lab--are revolutionizing the treatment of diseases such as cancer, arthritis and hemophilia. Worldwide sales of biologic medications rose 12.5% in 2007 to $75 billion, according to IMS Health.

But generics are only "one lever to address" rising health care costs, said Ellison. "If you can increase medication adherence by moving people to generics, you're going to start making an impact on chronic conditions. If people with chronic conditions aren't taking their medications, that could lead to possible major health events like a heart attack. If we can get them to move to generics and stay on them, then there's where we'll really start impacting overall costs."

Since pharmacy benefits comprise only about 15% to 20% of total health care costs, said Keith Kringle, vice president of finance for Health Net Pharmaceutical Services, "generics themselves can't totally compensate for all the inflation we see in other components of health care like hospitalization, physician and ancillary service costs. But it certainly can make a dent."

* State of the Market: Generic drugs accounted for 65% of prescription drugs dispensed in 2007, according to IMS Health.

* What's Being Done: Health plans are offering copay waivers, education programs and other initiatives to encourage members and providers to switch to generics.

* What Lies Ahead: Several brand-name and blockbuster drugs are expected to lose patent protection over the next several years, bringing even more savings to plans and their members.

Most Popular Generics

The 10 most dispensed generic drugs in 2007 in the United States:

Acetaminophen and Hydrocodone










Source: Generic Pharmaceutical Assoc. (IMS National Prescription Audit. National Sales Perspective, Nov. 2007)

Changing Prescriptions

A variety of tactics are being used to encourage greater generic drug utilization. Use of direct-mail campaigns is growing. A Medco Health Solutions survey found generic education campaigns employing targeted mailings increased generic conversion by 22%, at a savings of $88 per switch per year.

In 2007, UnitedHealth launched a program that identifies customers taking brand names with the highest copays. Members receive a letter about generic alternatives and the cost difference. "Health care providers also receive provider-specific reports listing their patients, for whom converting from a brand-name product to a genetic alternative may be clinically appropriate," said Jackie Kosecoft, chief executive officer of Prescription Solutions, a UnitedHealth Group-owned pharmacy benefit manager. They also receive education materials on the availability of the genetic medication alternatives to a branded medication within the same therapeutic class, along with dose conversion information, she added.


Retailers also are getting in on the action. In 2006, Wal-Mart launched a start-up program offering deeply discounted $4 prices for a 30-day supply for a diverse list of generics, which includes 14 of the top 20 prescribed medications in the United States. The program now accounts for more than 35% of all prescriptions filled at Wal-Mart, saving customers $350 million in costs.

Since then, a number of other chains, such as Target, Wegmans and BJ's Wholesale Club, have followed suit.

"That move is potentially improving generic utilization; not so much directly because members concerned about cost have already sought that out," said Keith Kringle, vice president of finance for Health Net Pharmaceutical Services. "But it's certainly raising general awareness about the value of generics as safe and effective alternatives to brand drugs."

Learn More

Blue Cross and Blue Shield Of North Carolina

A.M. Best Company # 64070

Distribution: Agents, brokers, consultants, exclusive sales force, direct

Blue Cross and Blue Shield Of Rhode Island

A.M. Best Company # 64570

Distribution: Direct sales force, brokers/consultants

Cigna HealthCare

A.M. Best Company # 68124 (Cigna Insurance Group)

Distribution: Agents and brokers

Health Net of California Inc.

A.M. Best Company # 68507

Distribution: Agents, brokers, consultants, dedicated sales force, direct

Independence Blue Cross

A.M. Best Company # 64553

Distribution: Direct sales representatives, brokers, association administrators, consultants, direct

Regence Blue Cross Blue Shield Cos.

A.M. Best Company # 60074, 60199, 60266, 64412

Distribution: Agents and brokers, direct

UnitedHealth Group

A.M. Best Company # 69973

Distribution: Independent agents, brokers, association

For ratings and other financial strength information visit
In the Pipeline

Several new generic drugs have been
released, or are set to soon be released in 2008.
Brand Name (generic name) Common Uses (2008)

Tegretol XR Seizures January-March

Fosamax and Fosamax Weekly Osteoporosis February
 (alendronate sodium)

Requip (ropinirole Hcl) Parkinson's/Restless May
 Legs Syndrome

Risperdal (risperidone) Mental/mood disorders June/July

Dovonex (calcipotriene) Psoriasis July-September

Cipro HC (ciprofloxacin/ External ear July-September
 hydrocortisone solution) infections

Severent Diskus and Inhaler Asthma/chronic July-September
 (salmeterol) obstructive pulmonary

Altace (ramipril) Cardiovascular October

Paxil CR (paroxetine Anxiety, depression October

Imitrex (sumatriptan) Migraines To Be Determined

Sources: LifeWise; Premera Blue Cross; University of Michigan; U.S.
Food and Drug Administration
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Title Annotation:Health/Employee Benefits
Author:Chordas, Lori
Publication:Best's Review
Date:Aug 1, 2008
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