Anthony Omojasola, DrPH

A role that managed care organizations (MCOs) andpharmacy benefit managers (PBMs) have traditionallyplayed is to increase generic utilization rate byenhancing generic substitution practice. Pharmacy benefitmanagers use tiered systems, mail-order pharmacy, and steptherapy to accelerate the use of generics.

 Employer planstypically charged an average copay of $10 for generics, $25for preferred brand drugs, and $40 for nonpreferred branddrugs in a tiered formulary system during 2007.

 By usingtiered formulary systems, PBMs provide financial incentivesto encourage consumers to use the lower-copay medication(generally generics). Although these attempts by PBMs werecriticized as well as appreciated, they proved somewhat effectiveover the years in improving generic utilization in conjunctionwith efforts by other healthcare sector participantsto promote generics and with the fact that more medicationslost patent protection in recent years.

 The cost savings associatedwith increased utilization of generics continue togrow as generic drug discount programs (GDDPs) have furtherdriven down the generic drug prices.

 The aim of thisstudy is to review a subset of these programs and discusstheir potential impact on PBMs and MCOs.

Generic drug discount programs are generally launched by a chain pharmacy. In these programs selected generic drugs are available at a subsidized rate, typically $4 for 30 days of supply (DS) and $10 for 90 DS to both insured and uninsured patients. Because this amount is lower than the copay that is typically charged by a health plan, these programs benefi t consumers. If an insured consumer opts in to the GDDP, then the MCOs and PBMs do not reimburse for that particular prescription. Walmart was the fi rst to introduce a GDDP, on September 22, 2006, in a pilot program in Tampa, Florida; this program was expanded across Florida on October 6, 2006.

 This program offered 314 generic prescription drugs at $4 per prescription for up to 30 DS.

 Within a day of Walmart’s initial announcement, other retail stores such as Target, K-mart, and Kroger followed with their own GDDPs.

 Moreover, the GDDP offered by Walmart wasopen to both the insured and the uninsured.

 To achievesuch a competitive price, mass retailers reduce the stepsin supply chain management, eliminate middlemen, andpurchase in bulk with volume-based cost discounts. Further,generics are now priced in relation to their actualcost, as opposed to the traditional pricing in relation totheir brand-name equivalents.

Generic drug discount programs have been criticized for a variety of reasons. They are considered to be a predatory practice to force smaller competitors like independent pharmacies to shut their businesses.

 Moreover, because prescriptions filled using a GDDP are not processed through PBMs, issues such as application of disease management programs and monitoring drug utilization data become questionable.

 It has been reported that the initial intent of the program was to increase the foot traffic in stores by extending attractive prices to cashpaying consumers.

 While there is no estimate of actual sales volume shifted to Walmart or other pharmacies, Bill Simon, Walmart’s executive vice-president of professional services, predicted that the long-term effect of the program would be a billion-dollar reduction per year in the nation’s healthcare cost.

 Walmart has since expanded the program further by broadening the supply period (90 DS) and consistently adding more generics, women’s health medicines, and over-the-counter drugs to the existing list.

 Other pharmacy chains followed in a similar manner, but varied in the amount and number of drugs covered. Since these GDDPs were launched, there have been no studies that compared them based on what they offer and their potential impact on MCOs.

As mentioned earlier, the take-up rates of these programs are not yet established. However, if the take-up rates of these programs are high, then GDDPs may have changed the delivery of medications by shifting a major proportion of the market share of generic drugs to GDDPs from PBMs and MCOs.

 There are mixed perceptions about the effect of these GDDPs on PBMs and MCOs. Some predicted that Walmart’s $4 generic program would force PBMs to shrink hefty profit margins on generics, whereas some believed that these programs do not seriously compete with PBMs; rather, they advocate PBMs’ aim to increase generic utilization.

 Because of their pivotal role in the US healthcare market, PBMs have helped to increase generic medication utilization. The generic utilization rate increased to 65% in 2006 compared with 47% in 2000.

 The launch of the first GDDP in 2006 and the awareness of such programs due to the advertising campaigns by pharmacy chains may have increased the generic utilization rate and may have increased profits for PBMs and MCOs.

The objective of this study was to evaluate differences in various GDDPs across large chain pharmacies operating in Houston, Texas, and compare them by reviewing the number of top 50 generic drugs (by retail dollar sales and total prescription volume) covered by each program. The secondary objective was to provide insight into the impact of such programs on potential cost savings associated with the delivery of medications for MCOs.

A cross-sectional field study was conducted by extracting data regarding the information about the GDDPs from local chain pharmacies. Large chain pharmacies operating in Houston, Texas, were selected for the convenience of collecting data locally (as a visit to the store might be necessary) and included CVS, Walgreens, Walmart, Kroger, Target, Randalls, and H-E-B. These pharmacies were among the top 20 pharmacies across the nation by pharmacy dollar volume.

 Walgreens ranked first by pharmacy dollar volume (2008) across the nation ($39.3 billion), followed by CVS (second rank, $33 billion) and Walmart (third rank, $19.63 billion). Kroger ranked fifth ($6.9 billion) and Randalls (Safeway) ranked seventh ($4.4 billion), followed by Target (eighth rank, $4.2 billion). Of all the pharmacies included in this study, H-E-B had the lowest rank at 19th ($1 billion).

 The 7 pharmacies’ total dollar sales summed to $108.43 billion, which is around 46% of national prescription drug spending ($234.1 billion) for the year 2008.

A data collection instrument was developed that included questions on the type of GDDP offered by DS, cost per prescription, total number of generic drugs included, and whether a prior membership was required for eligibility. A list of drugs covered in these GDDPs was acquired from the pharmacy Web site and by asking the local store manager or contacting the national office. The list was validated by making sure that the data matched for the various methods used; for example, the list from the local store was checked with that provided online at the pharmacy’s Web site. The data collection period extended from February 2009 to May 2009. The data were then entered into a data abstraction form using MS Excel 2007. The extent of drug coverage of each GDDP was obtained by comparing the GDDP drug list of each pharmacy with the list of top 50 generic drugs consumed in the United States by US national retail dollar sales and by total prescription volume during 2008.

 Data were then coded and analyzed using SAS version 9.1 (SAS Institute Inc, Cary, NC). Differences in the GDDPs were evaluated based on descriptive statistics.

Potential savings that could result due to the introduction of GDDPs were estimated by first matching the number of drugs included in these GDDPs with those in the top 50 generics list by US national retail dollar sales for 2008. A conservative average of 40% was considered as the share of prescription drug expense paid by private health insurance.

 The percentage of retail dollar sales out of total prescription drug spending by these 7 pharmacies was also considered. The savings could vary based on how many of those 7 pharmacies provided a given generic drug via a GDDP. It was assumed that pharmacies would process through the GDDP all prescription drugs previously covered under a patient’s managed care plan but now in the GDDP list. The formula developed to calculate the potential savings was as follows:

Potential savings for a drug = national retail dollar spending for the drug in 2008 × 

 × percentage of pharmacies in this study offering the drug in their GDDP, where 

represents the percentage of national retail dollars spent by PBMs (40%) and 

represents the percentage of the retail dollar spent by the 7 pharmacies in this study (46%).

All 7 major chain pharmacies in Houston offered a GDDP and were evaluated. 

describes the type of GDDP by DS, cost per prescription, number of drugs covered, and whether an enrollment fee was required. Most pharmacies offered both a 30-DS and a 90-DS program,except for Randalls, which offered only a 30-DS program and CVS, which offered only a 90-DS program. A 30-DS program was typically offered at around $4 and a 90-DS program at around $10, except for Walgreens, which charged $9.99 for a 30-DS program and $12.99 for a 90-DS program. Although all pharmacies covered a minimum of 300 generic drugs, the exact number of generic drugs covered by these GDDPs differed across pharmacies. H-E-B covered more than 500 drugs in its GDDP, whereas Randalls covered only 307 drugs. It should be noted that a drug with different doses was counted as a separate drug by these pharmacies in their list of drugs. For example: amitriptyline 10 mg, 25 mg, 50 mg, 75 mg, and 100 mg was considered as 5 different entries/ drugs when counting the number of drugs offered via a GDDP. It was observed that the list of drugs covered in a particular GDDP did not differ between 30-DS and 90-DS programs within the same pharmacy. Out of 7 pharmacies, 3 GDDPs required membership to obtain benefits of their respective programs. H-E-B requires a membership only for the 90-DS program, which involves a one-time fee of $5. The CVS program requires an annual enrollment fee of $10 and Walgreens’ Prescription Savings Club Card costs $20 annually for an individual and $35 for a family. All major therapeutic classes were covered by these GDDPs, ranging from allergies to vitamins and supplements.

When GDDPs were compared with respect to coverage of the top 10, 25, and 50 generic drugs, more drugs were covered when the list by total prescription volume was considered compared with drugs by retail dollar sales (

). On average, 16 (range 10-19) of the top 50 generics by retail dollar sales were covered in these programs. This number increased to 29 (range 22-33) when total prescription volume was considered. CVS (90-DS only) and Walgreens covered the highest number of top 50 generic drugs by retail dollar sales, whereas only Walgreens covered the highest number of top 50 generics when total prescription volume was considered. Despite being the first to launch the GDDP, Walmart covered fewer top 50 drugs than most other pharmacies except Randalls, which covered the least number of drugs by retail dollar sales and total prescription volume. When one considers the top 10 generics by retail dollar sales, only 1 drug was covered by CVS and Walgreens. H-E-B pharmacy covered only 2 drugs from the top 10 list by retail dollar sales, and the other pharmacies covered none. This number increased to 5 and 6 when drugs were considered by total prescription volume (Table 2).

When we reviewed the analyses by considering the percentage of drugs covered in the top 10, 25, or 50 lists, the results were not consistent for retail dollar sales and total prescription volume. An increase in the extent of 

coverage was observed for generics by retail dollar sales,

where 10% to 20% of drugs from the top 10 generics were

covered, followed by 8% to 28% from the top 25 generics,

and 20% to 38% from the top 50 generics. However,

the coverage remained more or less constant when drugs

by total prescription volume were considered (50%-60% from the top 10 generics, 48%-60% from the top 25 generics,

and 44%-66% from the top 50 generics). Further, the

increase in the coverage observed by retail dollar sales

was mainly for drugs in the 25 to 50 rank compared with

Articles

Generic drug discount programs, which differ across large chain pharmacies, may result in significant savings for managed care organizations.