How to understand prescription drug benefits Featured

9:01pm EDT June 30, 2011
How to understand prescription drug benefits

When it comes to prescription drug benefits, most are familiar with the terms “generic” and “brand name.” But do employees understand what a prescription drug formulary is? Do they understand the purpose and how a prescription drug formulary saves money?

A drug formulary is a list of prescription drugs — both generic and brand name — that are preferred by a particular health plan. The purpose of the formulary is to steer subscribers to the least costly medications that are sufficiently effective for treating a specific health condition. Medications on the formulary have been evaluated and researched for effectiveness and are the most cost-effective versions of popular prescribed medications. By using a single set of prescriptions for most routine treatments, health plans can provide quality care and keep costs at a minimum.

“Formularies change as new drugs and research become available,” says Michael Galardini, a sales executive for JRG Advisors, the management company for ChamberChoice. “In most health plans, the formulary is developed by a committee of pharmacists and doctors from various medical specialties. The committee reviews new and existing medications and develops the formulary based on safety and how well certain drugs work. The committee then selects the most cost-effective drugs.”

Smart Business spoke with Galardini about prescription drug formularies, the difference between generic and brand-name drugs and how employers can get employees to take an active role in their prescription treatment plans.

How do drug formularies work?

Health plans frequently ask doctors to prescribe medications included within the formulary whenever possible. Many health plans review whether or not doctors are using the formulary and, if they’re not, encourage them to do so. Most formularies have procedures to limit or restrict certain medications. This is done to encourage the doctor to use medications appropriately as well as to save money by preventing medication overuse.

Common restrictions include:

  • Prior authorization, which requires the doctor to obtain approval from the health plan before a subscriber can obtain coverage for a medication on the formulary. These are often medications that may have a safety issue, a high potential for inappropriate use, or lower-priced alternatives on the formulary.
  • Quality care dosing, where the health plan checks prescription medications before they are filled to ensure the quantity and dosage are consistent with FDA recommendations.
  • Step therapy, where the health plan requires a subscriber to first try a certain medication to treat their health condition before using another (more costly) medication.

What is the difference between generic and brand-name drugs?

People often have the misconception that generic versions of their prescription medications are inferior or weaker than the brand-name product. The fact of the matter is that the FDA requires generic drugs to meet the same standards as a brand-name drug. The difference between generic and brand-name drugs involves the research, development and marketing investment that go into the original brand-name product. The drug manufacturers, when developing an original brand-name product, spend millions of dollars. Once a generic equivalent becomes available, it has the same active ingredients and chemical purity as the brand-name drug. There may be differences in some of the inactive ingredients such as tablet fillers, binders, coatings or flavors, but the active ingredients are identical. It costs substantially less to develop generic drugs, which means the consumer costs are also substantially less in comparison to the brand-name equivalent.

Prescription drugs are one of the most costly elements of employer-sponsored health care plans. As drug costs rise and more prescriptions are dispensed each year, employees must do their part to ease the burden. Educate your employees to ensure they understand the value of a generic equivalent. Employees who understand this important component of their benefits plan will make more informed choices, reducing not only their out-of-pocket costs but, ultimately, their employer’s cost in the long run.

How can someone be a better consumer of prescription drugs?

You can cut costs by up to 90 percent by becoming an informed consumer and using the same buying techniques that you use when shopping for other goods and services. As more individuals begin comparison-shopping for drugs, more retailers will compete to win their business, which will drive prices lower. Other ways to lower costs include buying in bulk, utilizing mail-order pharmacies and/or discount prescription programs and buying generic or over-the-counter drugs whenever possible. Also, many drug companies and states offer drug assistance programs for the elderly, low-income patients and/or people with disabilities.

Does a pharmacist make a difference?

Your pharmacist is an important member of your health care team. He or she can help you understand your medications and how to take them safely and effectively. By keeping accurate and up-to-date records and monitoring your use of medications, he or she can help protect you from taking improper medications, unwanted side effects and dangerous drug interactions.

Here are some points to cover with your pharmacist:

  • How and when to take the medication.
  • How much to take and for how long.
  • What foods, drinks, other medications or activities you should avoid while taking this medication.
  • Any potential side effects.
  • What to do if you miss a dose.
  • Any concerns you have with taking this prescription.



Michael Galardini is a sales executive for JRG Advisors, the management company for ChamberChoice. Reach him at (412) 456-7235 or