Generic drug pricing not paying off for private plans

A great deal of the potential that has been touted about the impact of lower generic drug prices on the private sector has yet to be realized. This is further evidence that plan sponsor reliance on passive drug plan management is not likely to bear fruit with respect to long-term cost containment.

Cubic Health recently completed a study of over 19 million prescription drug claims in the private sector from 2009 and 2010 that represented in excess of $866 million in plan spending. The trends that we’re seen in terms of the utilization of generic products were extremely concerning, especially given the continued steady increase of spending on expensive specialty drugs.

Generics utilization increases: very weak
The most intriguing finding from the research was the very weak increases in the use of generics drugs within the data set.

  • In 2009, the generic penetration rate (GPR) was 44.4%–meaning that fewer than 45 of every 100 prescriptions were filled for a generic drug.
  • In 2010, the GPR increased to only 45.2%

Despite the introduction of generic atorvastatin (Lipitor) in May 2010, and given the presence of generics in the market for former blockbuster brand name products that have lost their patent including Altace, Effexor XR, Celexa, Prevacid, Pantoloc, Losec, and Norvasc–it is stunning to see that the GPR in this data set of millions of claims was only 45%. This is a stark contrast to the GPR of over 75% that is commonly seen in the United States, where higher GPR is driven by plan designs that incent the selection of most cost-effective products where available and where appropriate.

Generics by class
It was interesting to see what was happening at a class level within very common classes of medications. As of Oct. 1, 2010 the generic penetration in the “statin” cholesterol class of medications that includes Crestor, Lipitor, and Zocor was still below 20%.

There was actually a net decrease in GPR within the SSRI and SNRI classes of antidepressant medications which was also remarkable to see given that there are generic versions of Effexor XR, Paxil, Celexa, Zoloft and Prozac on the market. It would appear that the brand name drugs that remain in this class (i.e. Cipralex and Cymbalta) have enjoyed significant increases in market share despite the fact they enjoy not greater clinical benefit than other drugs in the same class.

Although the PPI class of stomach acid lowering medications features generic versions of the popular drugs Losec, Pantoloc, Prevacid and Pariet, the brand name product Nexium still represented 38% of total spending in this class in 2010. These examples are all evidence of the success of marketing brand name products within competitive drug classes that feature generic alternatives.

What next?
In this sample of over 19 million claims, spending on generic drugs was only 25.5% of total plan spending in 2009 and 26.8% in year two. Given that provincial drug pricing legislative changes were only focused on generic drugs, lower generic prices are going to have a limited impact on plan costs if plans are not seeing significant increases in utilization, or in some cases, are seeing decreasing generic penetration in key classes.

There are some remarkable drug products being brought to market. There have been innovations in treatment for diabetes, multiple sclerosis, cancer and hepatitis C, for example, that will have a significant impact on patients in the years ahead.

In addition to what has been developed, there are some very exciting therapies in late stage clinical testing. Specialty drug spending is hands down the fastest growing segment of the market which is being driven not only by biologic-based specialty drugs, but also by non-biologic specialty products.

The only way plans will be able to afford the increases utilization of specialty drugs (without having to shift more cost to members or reduce the benefit provided) will be to take advantage of lower cost therapeutic alternatives were available, and where appropriate.

Mandatory generic substitution is not the answer, because that only targets multi-source drugs. Until Canadian plan sponsors and their advisors begin to adopt tiered plan designs that incent more cost-effective drug utilization where appropriate, we will continue to see suboptimal GPR. We don’t need to reinvent the wheel from a plan design perspective in Canada–there is a reason why 95% of U.S. drug plans have either a three or four-tiered drug plan. They have greater than 75% GPR, and we are struggling to hit 50%. It should be noted too that Lipitor is not yet a generic product in the U.S.

There is an important role for both innovative and generic drug products in the marketplace. My family has been the beneficiary of wonderful advances in specialty drug therapy. I suspect there are very few families out there that have not benefitted in some way from innovative drug products. The research and development of specialty products is something that should be supported, however, I think most would agree that very few plans and plan members have the resources to continue to pay for any and all drugs whenever they are required, and that we need to make better use of cost-effective alternatives where appropriate.

If you are running a manufacturing facility in Brampton, Ont. and dealing with a $1.03 Canadian dollar, does anybody think that there is an endless pool of money to pay for drug benefits there?

If you are a 75-life plan sponsor with a member who has initiated $25,000 per year MS therapy, do you have the luxury of taking no active role in ensuring the cost effectiveness of your plan?

If Canadian plan sponsors continue to embrace passive plan management, they will be forced to start making some very unpleasant choices about what they can cover and how much they will have to download to members. It’s time for plan sponsors to take a closer look at their existing plan designs, and find ways to make them more sustainable now, not 24 months from now.