Generic drug pricing: good news gets better

Ontario, Alberta and British Columbia have made significant changes to drug pricing, which, according to experts at Hewitt Associates, will save plan sponsors money immediately. While this is good news for employers, according to Tim Hadlow, a senior consultant with Hewitt’s health management practice, many plan sponsors haven’t started to think about the long-term impact of these changes and aren’t maximizing the potential cost savings.

“These are interesting times right now,” he said. “Will employers see the need to change? The savings are available regardless of action for some. But going forward, there will need to be some review of the plan,” Hadlow reminded the web audience that generics account for only 25% to 30% of total drug spend. “There’s still another 75% to think about.”

He and his colleague Laura Williams, also a consultant in Hewitt’s health management practice, suggested plan maximums, mandatory generic substitution, drug cards and dispensing-fee caps as elements that plan sponsors should consider implementing in their plans. If these items already exist, they should be reviewed.

Tailored communication and education were also on the list of “must-dos” if plan sponsors want to maximize savings—and not only on plan design but also on using the plan effectively and ensuring they are getting the most for their money. “Employees should review their prescriptions. I suspect most don’t even look,” Hadlow said. “Are the dispensing fee and markup being applied appropriately?”

Some other interesting facts that came from this presentation (based on data from Hewitt) that may interest plan sponsors are:

• 23% of companies have annual limits ranging from $25,000 to $30,000 for their medical/drug plans.
• More than half of employers (in a study of 133 organizations) are analyzing their plan data annually, but 51% aren’t doing anything with that analysis.
• 60% of plan sponsors require mandatory generic substitution, 27% will consider it if there are savings.

In a Towers Watson webcast, Canadian health and group benefits leader Wendy Poirier explained that plan sponsors should divide their energy between short-term and long-term action.

Short-term
There are two key themes that require the immediate attention of plan sponsors, explained Poirier.

Pricing files
Pharmacy Benefit Managers (PBMs) provide drug plan adjudication services (such as drug cards, point of sale payment and adjudication systems) to plan sponsors directly or indirectly, and where any aspect of drug price is unregulated, PBMs negotiate with pharmacies. As a result, details and business drivers are not well understood by plan sponsors.

PBMs should now offer plan sponsors full transparency into their pricing agreements and their capabilities to track and enforce all aspects of drug pricing on day by day basis.

“Now that there’s some understanding of the price file and that it’s negotiated between the PBM and pharmacy, it’s critical to understand how to manage that, as your drug costs will be directly affected by your PBM’s ability to negotiate and/or enforce the pricing agreements they have,” she said.

Questions to ask your PBM might include:

• Can they track generic pricing?
• Can they track exceptions?
• Can they ensure the fee and markup controls are in place?

Generic substitution
Plan sponsors are reviewing the application of their current approach for generic substitution, which generally means reimbursement up to the lowest cost interchangeable (not an exclusion for brands).

However, there are many questions that arise once a physician writes “no substitution” on a script, said Poirier.

“Does the PBM just pay the full brand cost? Why is the physician indicating ‘no sub’ if the patient has not even tried a generic? Is a workable appeal process available to support full price restriction?”