Increasingly, pharmaceutical companies are shifting popular drugs whose patents are soon to expire into the over-the-counter (OTC) market so they can continue to capitalize on their brand name recognition.

Two recent examples are the allergy medicine Claritin® and Prilosec®, a gastrointestinal drug. In both cases, the manufacturer introduced a “next generation” prescription medicine (respectively, Clarinex® and Nexium®), then moved the older version to OTC.

Statins – anti-cholesterol drugs whose utility has been boosted by sharply lower LDL cholesterol targets issued recently by the National Institute of Health – may be the next example.

With the increasingly common use of powerful, direct-to-consumer advertising, drug manufacturers can develop and retain broad demand among patients for the OTC drugs even as doctors no longer prescribe them.

This trend presents a new opportunity for LIUNA health and welfare fund administrators and trustees.

Because, typically, OTC drugs are cheaper than prescription alternatives, they may offer a cost-saving alternative for members and LIUNA health and welfare funds. Through effective benefit design, OTC drugs could safely become a first option in treating certain conditions in appropriate situations.

However, funds must approach the issue cautiously in order to ensure stronger participant education while guarding against excessive OTC reimbursement obligations.

Though a fund may choose to cover OTC drugs, it need not do so, nor must it cover all OTC products. Indeed, many items in OTC listings are not drugs at all (shampoos, lotions) and some (vitamins) address general health, not particular health problems.

Thus, the first issue is what OTC drugs should be covered. Clearly, a decision to cover all OTC drugs would increase a fund’s costs. Further, a decision to open coverage to some OTC drugs may open a fund to pressure to expand coverage to others.

To avoid these problems, funds must be guided in their selection process by clear, logical, defensible guidelines. First and foremost, funds should limit coverage to OTC drugs that have a national drug code and for which there is a prescription alternative. This ensures no broad expansion of medical coverage.

Funds also should consider ways to encourage patients to choose the less expensive OTC options, provided there is no medical reason for sticking to the prescription medication. The cost of the OTC medication should be compared to the patient co-pay for the prescription version. If the co-pay is lower, funds may want to reevaluate their co-pay levels for brand name and generic drugs. If no co-pay plan exists, a fund may want to consider implementing a new tier of higher co-pay prescription drugs for those with cheaper OTC alternatives.

One reasonable approach would be to require a doctor’s prescription in order to substantiate that an OTC purchase has a reasonable medical purpose. Otherwise, funds may have to sort through a variety of drug and grocery store receipts that do not, themselves, indicate for whom and for what purpose OTC drugs were purchased. However, if prescriptions are required, funds must take note of the possible cost of additional doctor visits or phone consultations.

The savings realized from encouraging use of OTC alternatives may be offset to some extent by increased administrative costs. These costs may be insurmountable for funds without a pharmacy benefits manager (PBM), such as LaboreRx. Those with a PBM can use it to process OTC claims, just as they do with prescription drugs.

Any decision to reimburse patients for OTC drug costs must be accompanied by a plan to educate fund participants and their doctors. Once a definite list of eligible OTC drugs is established, it should be published in educational materials and on the fund’s website. Also, a brochure should be prepared that explains why OTC coverage is now offered and the cost benefits for patients. Further, if a doctor’s prescription is required, doctors need to be educated as to which OTC items are eligible.

[Steve Clark]