No doubt, you’ve noticed that prescription drugs are expensive.  For most of the last decade, drug prices have been rising at double-digit rates.

Generic Medicine
When it comes to your own health or that of your family, you only want the best.  So what is the real truth about generic medicine?  Does it measure up?

After a company develops a new drug, it enjoys exclusive rights to market it for a certain number of years so it can earn a return on its research investment.  When the time is up, other companies can make and sell copies of the original. 

Though these copies may be a different color or shape from the original, they are exactly the same with regard to:

  • Active ingredients
  • Strength
  • Purity
  • Quality and stability
  • Dosage form (i.e., pills, liquid)
  • Effects on the body
  • Complying with Food and Drug Administration standards

Generic prices are lower because their manufacturers have no research costs to cover and they do not spend any money to advertise or market the drugs to consumers or doctors.  The average ingredient cost of a brand-name drug is $104 while the ingredient cost of the same drug in generic form is $23.

But the market is also always changing and LIUNA health and welfare funds can save money by

keeping themselves in tune.The most significant change in recent years is the increasing number of generic medications. Generics do the same work as brand-names, so if a fund’s participants make the switch, the fund provides the same quality product at a substantially reduced cost.

Between 2002 and 2005, 87 brand-name drugs went generic.  This year, the Food and Drug Administration plans to approve another 15.  Together, these drugs have annual sales of $42 billion.

Yet, this is just the beginning.  Over the next five years, drugs with annual sales of $50 billion will lose patent protection and go on the generic market.

Encouraging Generic Use

Funds can encourage generic utilization in a variety of ways.
Perhaps most basic is the use of a pharmacy benefits manager (PBM) such as Express Scripts, Inc. (ESI), the administrator for the LaboreRx program.  PBMs, through negotiated discounts and bulk purchasing, secure lower drug prices for funds, but they do a lot more than that.  Most of all, they provide a structure that ensures that the most up-to-date knowledge of the market guides prescription filling by doctors and patients.

The LaboreRx program is the product of an agreement between the LHSFNA and ESI under which ESI guarantees certain fees, discounts and rebates on prescriptions for participating LIUNA health and welfare funds.  Currently, LaboreRx is used by 28 funds.  During the first quarter of 2006, Express Scripts’ generic-fill rate reached an all-time high of 56 percent, up from 42 percent just five years ago.

One way that the PBM boosts generic utilization is through generic first-use programs that require doctors and their patients to try generic drugs before resorting to brand-name medication.  Programs exist for 25 disease states, including diabetes, hypertension, depression and allergies.  Most LIUNA health and welfare funds that participate in LaboreRx have mandatory use requirements when a generic is available.

Whether a fund participates in a PBM or not, it can encourage generic use by re-evaluating and raising its co-pays on brand-name medication.  In fact, if a fund has not looked at its co-pay structure in some time, it may want to raise co-pays on all medications.  These days, typical generic co-pays are in the $5-10 range and brand-name co-pays are $15-30.

The difference in co-pay between the brand-name and generic should be enough to encourage patients to try the generic and see if it works for them.  Because the generic is essentially the same as the brand-name, the outcome should be good, and the patient is likely to embrace consistent generic use to keep the direct savings.  This, in turn, produces an even more substantial savings for the fund because the average ingredient cost for a brand-name drug is $104 and the average ingredient cost for a generic is only $23.

Funds that use PBMs also can take advantage of three-tier pricing.  Under this program, patient co-pays are lowest for generics, higher for preferred brand-names and highest for other brand-names.  The “preferred” brand-name is the drug that the PBM has designated as its primary response to a particular disease state.  While other brand-names might also address the condition, the PBM is able to provide price discounts on the preferred drug due to volume discounts from its manufacturer.

Efforts to encourage generic use can be affected if doctors insist on writing DAW (dispense as written) prescriptions.  Yet, doctors can be difficult to reach and they may be influenced to prescribe a brand-name medication, even if a generic is available, by drug company marketing.  Thus, funds can have the most impact on generic choice though educational programs aimed at their participants.

The most basic point in participant education is persistent explanation about the quality of generic medications – they are just as good as brand-names.  More attention to this point can be ensured by co-pay schedules that encourage the participant to notice the savings available through generic use.  On behalf of LaboreRx, Express Scripts has an 8-part email generic education campaign that participating funds can use to raise generic consciousness.  It also has a generics brochure in English and Spanish.  For more information on these services, funds participating in LaboreRx should contact the LHSFNA Health Promotion Division (202-628-5465).

If a patient requests a generic, few doctors will insist on the brand-name unless they fully believe it is medically necessary.  Typically, however, the doctor will not know if a generic is available (or, when a brand-name must be chosen, which of the available options is preferred by the patient’s health plan).  One way to overcome this problem is to ask fund participants to bring a printout of the PBM formulary (Express Scripts Formulary) list when they visit their doctor.  Another option is to encourage patients to ask their prescribing doctors to go online and check the fund’s formulary.  Of course, both of these options are feasible only if a fund is working with a PBM that maintains an up-to-date website.

According to Express Scripts, each one percent increase in generic use saves a fund one percent in the cost of providing drug benefits.  As more generics arrive on the market, funds are well-advised to be sure they are doing everything possible to expand generic use among their participants.