How employers can rein in rising prescription drug costs without sacrificing quality coverage Featured

7:00pm EDT November 25, 2010
How employers can rein in rising prescription drug costs without sacrificing quality coverage

Balancing the cost of prescription drugs against the need for them has become a challenge for everyone in the health care system. Employers who pay for prescription drug coverage find they must choose between shifting more costs to employees and reducing the level of prescription benefits.

“Quite simply, people need access to affordable prescription drugs,” says James A. Giardina, RPh, M.S., regional vice president of Pharmacy Services for HealthAmerica. “As costly as it has become to provide coverage for prescription drugs, these medicines are usually an important part of medical care plans, both to treat illnesses short term and to help control chronic disease and improve health in the long term.”

Smart Business spoke with Giardina about what employers can do to manage rising prescription drug costs without sacrificing quality coverage.

Why are prescription drug costs increasing?

Partly it’s because more people are using more drugs. In many cases, it’s because newer and costlier brand names are being prescribed. Also, drugs are coming to the market priced more expensively than the drugs they are often replacing, and drug companies are spending more money to advertise to consumers. In addition, people are living longer, and sedentary lifestyles are creating more health problems.

What are some ways employers can keep the pharmacy benefit affordable for themselves and their employees?

Employers can take steps to help contain costs while ensuring that their employees are using medications more effectively.

  • Use therapeutic equivalents. Therapeutic equivalents are drugs in the same or a related class that do the same job, often at a lower cost. For example, a patient taking 10 milligrams of Lipitor could get a comparable decrease in cholesterol with 20 milligrams of Zocor. So, a person could take Zocor in place of Lipitor and get the same outcome. In fact, if someone took simvastatin — the generic version of Zocor — instead, that person could save money, as well.
  • Set quantity limits. Setting quantity limits works like this: One daily dose of the antidepressant Lexapro at 20 milligrams is as safe and effective as taking two Lexapro at 10 milligrams a day. One 10 milligram tablet costs the same as one 20 milligram tablet, so taking two 10 milligram tablets a day doubles the price of the treatment. This can unnecessarily drive up the cost of providing the medicine. Quantity limits promote appropriate and cost-effective medication use.
  • Use formularies. A formulary is a list of prescription medicines that a health plan covers. Some drugs cost a lot of money, but the price of a drug does not necessarily correlate to its benefit. Formularies guide drug selection so that employers can be certain their employees have access to effective medicines, including brand-name and generic drugs, at a reasonable cost.

Are generic medicines living up to their promise of lowering prescription drug costs?

Using generic medicine is an excellent way to save money. Generic drugs typically cost 20 to 70 percent less than their brand-name equivalents. According to the Congressional Budget Office, generic drugs save consumers an estimated $8 billion to $10 billion a year at retail pharmacies.

If people want to save money on prescription medications, they can be assured that an FDA-approved generic drug is just as safe and has the same high quality as a brand medication. A generic drug is the same as a brand name drug in dosage, safety, strength, how it is taken, quality, performance and intended use. Before approving a generic drug product, the FDA requires many rigorous tests and procedures to assure that the generic drug can be substituted for the brand-name drug.

The main difference between the two medicines lies in the cost. Generics are less expensive because of how they get into the market, not because they are made with lower-quality products. Creating a new drug from the beginning costs lots of money. Generic drug makers do not develop a drug from scratch, so it costs less to make a generic.

What other prescription drug benefit strategies can employers use?

Pharmacy costs can be effectively managed through benefit plan designs that provide financial incentives for using less costly generic and preferred brand-name drugs. Multi-tiered drug benefits using different flat dollar copayments require employees to pay higher copays for brand-name drugs or drugs that are not on the formulary. Some tiered drug benefits also use percentage copayments, or coinsurance, in which employees pay a percentage of the cost of the drug, rather than a flat dollar amount. Both benefit designs oblige people to have a bigger financial stake in the process, so they tend to get more involved in finding affordable and effective drugs to use.

In addition, employers should encourage employees to educate themselves on their diseases and drug therapy treatments, and to talk to their doctors about alternative treatments. Sometimes people can avoid taking medication altogether by changing a lifestyle habit or doing something differently. For example, doctors often find that when patients change their diets or use the right over-the-counter medications, mild heartburn may be controlled without using expensive proton pump inhibitors.

Employers should also support employees in leading healthy lifestyles. The more overweight people are, the more health problems such as diabetes, arthritis, heart disease, stroke and certain cancers they are likely to have. And the more health problems a person has, the more medication he or she will use. Therefore, it makes sense to help your employees lose weight, quit smoking and make other healthy lifestyle choices.

For more information from the FDA, visit

The Consumers Union and Consumer Reports Best Buy Drugs can be found at

James A. Giardina, RPh, M.S., is the regional vice president of Pharmacy Services at HealthAmerica. Reach him at