Cost-Saving Generic Drugs

Community Pharmacists Can Help Maximize the Use of Low-Cost Generic Drugs

Local pharmacists are consistently cutting costs for patients, employers and other health plan sponsors by maximizing the use of less-expensive generic drugs, where appropriate.

Almost no payers are maximizing potential generic drug savings. The Generic Pharmaceutical Association (GPhA) released an independently conducted analysis showing that the savings to consumers and the U.S. health care system from the use of generic prescription drugs has risen to a current rate of $1 billion every other day—totaling $193 billion in 2011 and more than $1 trillion over the last 10 years (2002-2011). In 2011 & 2012, 6 of the 10 largest-selling brands in the U.S. will lose their patents, enabling a windfall in generic savings. It is vital that health plan sponsors fully focus their attention on maximizing this savings strategy rather than less effective strategies such as mandatory mail order.

In 2009, Medicaid had $329 million of overspending as a result of underutilizing generics. Today, 7 out of 10 prescriptions are filled with generic drugs. The average price of generic drug is about one quarter of the average brand: $35.22 vs. $137.90. And there are plenty of opportunities to embrace generics savings. Approximately 80% of FDA-approved drugs are available as generic; 2.6B prescriptions are filled with generics annually. Generics account for 69% of all U.S. prescriptions but only 16 percent of all dollars spend on drugs. Step one for health plan sponsors is to challenge pharmacy benefit managers (PBMs) to significantly increase and guarantee generic dispensing rates (GDRs) rather than simply float on the market dynamics or push mail order.

In 2010, retail pharmacies dispensed generics 72.7 percent of the time while the big three PBMs' mail order dispensing facilities had generic dispensing rates of 60.5 to 61.5 percent.

For patients, employers and health plans, that difference adds up quickly. For example, IMS Health concluded that every two percent increase in generic utilization in Medicaid programs saves taxpayers an additional $1 billion annually. More broadly, a one percentage point increase in GDR was associated with a 2.5% reduction in gross pharmacy costs, according to an analysis of plan sponsor data from 2007-2009 for approximately 14 million beneficiaries.

One explanation for this gap between the utilization of generic drugs in community pharmacies vs. mail order facilities may be the big PBMs' pursuit of brand name manufacturer rebates. Industry analyst Linda Cahn has argued in Managed Care Magazine that PBMs reap huge brand drug rebates by manipulating brand and generic drug definitions: "...when it is in PBMs' interests to classify more drugs as generics, they magically recharacterize the drugs as generics. For example, PBMs wanting to make their generic substitution rate appear greater reclassify drugs that they invoiced as brands as generics when calculating the number of generic drugs dispensed. Similarly, if a contract calls for a PBM to pay a specified rebate 'per brand drug claim,' it can reclassify drugs that were invoiced as brands as generics for the purpose of calculating rebates..."

Some PBM allies assert that the reason for this discrepancy in generic drug utilization is that mail order pharmacies dispense maintenance medications that often have no generic alternatives. However, total generic market share has risen significantly over the last five years, according to IMS:

  • In 2006, the generic market share was just 63 percent; in 2010, it was 78 percent
  • The prescription drug market available for generic substitution rose from just 70 percent in 2006 to 84 percent in 2010
  • Twenty-two of the top 25 most-prescribed products in 2010 are generics, versus three brand drugs
  • Within six months of brand patent loss, patients received the generic form of the drug 80 percent of the time in 2010. This compares to just 55 percent in 2006
  • For patients starting therapy for chronic conditions in 2010, 3.2 million more patients started their therapy with a generic while 6.6 million fewer patients started therapy with a brand

Despite these trends, the difference between community pharmacy and mail order pharmacy generic dispensing rates remain virtually unchanged. Year after year, from 2007 to 2010, community pharmacies dispensed generics 10 to 13 percent more often than mail order.

Clearly, community pharmacies have established a generic dispensing rate that is the "gold standard" for the industry.