Good generics Featured

8:00pm EDT April 25, 2008

Prescription drug costs continue to be the fastest growing health expense in our country. Experts project increases as high as 13 percent during the next several years. Critics of rising drug costs are quick to blame the pharmaceutical companies’ advertising and aggressive sales practices when, in fact, there are many other factors that contribute to this increase. Primarily, the third-party payer systems have discouraged patients’ personal accountability for their health care decisions, says Sally Stephens, president of Spectrum Health Systems.

Other factors include increases in diagnosed chronic conditions, such as asthma, diabetes and heart disease. Innovative new treatments for osteoporosis and anemia, as well as more cost-effective applications of drug therapies, are also factors. These trends and rising costs have many companies re-thinking their generous health care benefits.

Smart Business spoke with Stephens about rising drug costs, the use of generic drugs and why generics shouldn’t be feared.

What options do business owners have to deter prescription drug costs?

A very significant trend gaining traction as a mechanism for managing these costs and encouraging individual accountability is defined-contribution or consumer-directed health plans. These plans place the decision about the right level of pharmaceutical spending where it belongs: in the hands of the consumer and physicians. Instead of paying on a prescription-by-prescription or visit-by-visit basis, the employer contributes a fixed sum that employees can spend at their discretion. Other tools utilized include pharmacy networks, in-house networks, mail-order programs and drug formularies. Prevention will always play a key role in managing costs. Early detection allows an individual to catch a problem prior to it getting out of control and becoming a crisis.

Do lower prescription drug costs mean lower rates of successful recovery?

With all the frenzy for cost cutting, employers should keep in mind the value that prescription drugs provide. Some prescriptions are used for preventive measures against serious and costly diseases and conditions. High blood pressure medication, when controlling blood pressure, can decrease medical costs from complications of high blood pressure, such as heart and kidney disease. In addition, employees who are compliant with their prescriptions return to the work force more quickly and are more productive.

Are generics good options for cutting costs?

One popular approach for managing prescription drug costs is by using formularies, or lists of specific medications that employers will pay for. Usually, formularies involve eliminating certain drugs entirely or substituting one drug for another. Two types of substitutions include: generic substitutions in which a generic drug is substituted for a brand-name drug and therapeutic substitutions where another of a similar type replaces a particular type of drug. Generics can still vary in cost by as much as 500 percent so a good plan will standardize pricing and limit how much the pharmacist can mark up a generic drug. Nevertheless, the potential for overall cost savings is enormous, generally 80 percent less, when employers are aggressive about steering employees to generic drugs.

Why do people fear generic drugs?

Historically, the main reason consumers shied away from generics is that they questioned the therapeutic effectiveness of a generic compared to the brand-name drug. Although some consumers claim that a generic drug does not have the same effectiveness as the brand name, there is, in fact, very little difference between the two. Today, employers and employees are aware of the equivalency of generic drugs so there is much less discussion about value. In fact, the change in the public perception of generics is stunning. They are no longer perceived as unsafe knock-offs, and market share for generics is projected to be around 53 percent.

Does lowering prescription costs for employers increase costs for employees?

Today, almost all health plans use higher co-payments on branded drugs to push employees toward generics. However, some health plans are eliminating co-payments or out-of-pocket costs for generics altogether. In some cases, health plans are requiring documentation from physicians that their patient actually needs a brand-name drug when a generic equivalent is available. Some plans won’t cover a brand-name drug if a generic is available.

Are there any prescription drug plans that benefit the employee?

An increasingly popular approach is a tiered plan where consumers are no longer charged the same out-of-pocket costs no matter what prescription they choose. Under these plans, the generic may cost a $5 co-payment, while the brand-name drug would cost $10 and a newer, more expensive drug would cost $15. Under the old system there was no financial incentive for the consumer to pick a lower cost drug over a name-brand drug. Many employers are even waiving the employee cost for certain medications for conditions such as diabetes or heart disease because they no longer want to risk the financial implications that deter employees from complying with the treatment plan.

SALLY STEPHENS is the president of Spectrum Health Systems. Reach her at