Payers Pushing Generic Drugs to Curb Costs

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PBMs are realizing that encouraging the use of generic medications not only helps their patients save money, it helps them save as well.

Mr. Lamb is a freelance pharmacy writer living in Virginia Beach, Virginia, and president of Thorough Cursor Inc.

In May 2007, Aetna began informing beneficiaries enrolled in some of the company's prescription plans that they were eligible for 6 months of free antidepressant medications. The only requirement for having copayments waived was switching from Lexapro (escitalopram oxalate, Forest Pharmaceuticals) or Paxil CR (paroxetine hydrocholoride, GlaxoSmithKline) to therapeutically equivalent generic versions of the drugs.1

Aetna's Save-a-Copay program was launched on a trial basis in 2006 and is also open to beneficiaries with prescriptions for statins, nonsedating antihistamines, and proton pump inhibitors. Although more generous than most, Save-a-Copay is just one of a growing number of initiatives private insurers and pharmacy benefit managers (PBMs) have undertaken to promotegeneric drug use as a means of lowering costs for themselves and patients2 (Table).

Jeffrey Holmstrom, DO, medical director of Anthem Blue Cross and Blue Shield in Maine, explained, "The launch of [our] GenericSelect [program] not only provides members with an expanded list of quality, prescription medications, but also offers substantial savings to those members who choose to switch to generics. While savings will vary by plan, on average, members may expect to save $15 to $40 per month."3 Basing cost-sharing amounts on the brand or generic status of products and encouraging mail-order prescription filling are among the other cost-saving strategies payers are employing.

The efforts are paying off. In January 2007, the Centers for Medicare & Medicaid Services reported that health care spending data for 2005 indicated that "growth in retail prescription drug sales decelerated for the sixth consecutive year, increasing just 5.8% in 2005, following 8.6% growth in 2004 and 10.6% in 2003. This slowdown was primarily due to adramatic decrease in Medicaid prescription drug spending, along with increased use of generic drugs."7

Insurers Incentivizing Patients to Choose Cheaper Products

Generics already constitute more than half of the prescriptions covered by private insurers. Aetna, for example, reported that 59% of the drug claims it processes are for nonbranded products.1,5

Plans' generic fill rates (GFRs) are likely to grow even more in the next few years because, as a Medco-sponsored survey of 200 midsize insurers revealed, "nearly 70% of respondents believe stronger incentive programs, including those that require or encourage the use of generics, will have the greatest impact on controlling plan costs." The survey also found that 98%of prescription drug plans employed "methods that encourage the use of generics and plan-preferred brands."8

The principal cost-containment strategies used by plans are mail-order pharmacy and tiered copays. Some 90% of plans promote filling prescriptions via mail, and 38% require mail order for some prescriptions. According to an Express Scripts study, 80% of for-profit and not-for-profit insurers have 3-tier copayment plans, which were shown to have the greatest potential of encouraging the selection of generic products.9

Among 3979 Express Scripts?affiliated plans, those "with a generic-versus-brand copayment differential of $21 or more used generic drugs at a rate 5.2 percentage points higher than plans with a $0-to-$5 differential. Plan sponsors with copayments tiered at 3 levels—generic, formulary brand, nonformulary brand—had generic fill rates of 1 to 2 percentage points higher, compared to flat dollar 2-tier or coinsurance."10

PBMs Promoting Generics to Patients and Pharmacies

Like insurance plans, PBMs are reporting large gains in GFRs and projecting further growth, especially as more blockbuster drugs come off patent. Laizer Kornwasser, Medco Health Solutions senior vice president of channel and generic strategy, recently observed, "The savings opportunity for patients and payers is enormous, and it's happening as Americans are recognizing that generic counterparts to these brand drugs are just as safe and effective. Consolidated generic dispensing rates will likely exceed the 60% range in the near future."11

Medco, which offers flat $5 copays for generic drugs, currently fills 55.2% of the prescription orders it receives with generics. In 2002, the company's GFR was 40.5%.11 Similarly, Express Scripts' overall GFR for 2006 was 59.7%, after standing at 41.7% in 2002. For individual products, generics can account for nearly all dispensed prescriptions.12,13

Reliance on mail order is also boosting GFRs. Kornwasser noted that "through our mail-order pharmacy, we can achieve a 95% generic substitution rate within the first week of the brand losing patent protection."11

John Figueroa, president of US pharmaceutical distribution for McKesson, which claims to be the largest purchaser and distributor of generic drugs in the world, told attendees of the McKesson Pharmacy Strategies Conference and Tradeshow in June of 2006 that "the opportunity to capitalize on generics is very exciting." He specifically pointed at his company's Generic Utilization Diagnostic and GenericSelect programs, which facilitate rapid ordering, delivery, and substitution of generic drugs, as initiatives that allow pharmacies and patients to save money while meeting health needs.14


  • Aetna offers copay-free period to promote appropriate use of generic antidepressants. Aetna press release. May 21, 2007.
  • Plan sponsors eye generic drugs, not CDHPs, for cost savings, survey shows. US Insurance News. June 18, 2007.
  • Anthem BlueCross and BlueShield launches generic drug program in Maine. Anthem press release. March 20, 2007.
  • CareFirst BlueCross BlueShield offers members coupons to encourage generic drug use effort aimed at reducing drug costs for members. BlueCross BlueShield Association press release. September 5, 2006.
  • CIGNA Pharmacy Management announces discounts on generic drugs. CIGNA Corporation press release. July 28, 2005.
  • Humana introduces 2007 generics program to help members reduce out-of-pocket medication costs. Humana press release. December 12, 2006.
  • Centers for Medicare & Medicaid Services. CMS releases US health spending estimates through 2005. CMS press release. January 9, 2007.
  • New survey: consumer-directed health plan growth levels off among employers; plan sponsors embrace generics. Medco Health Solutions press release. June 12, 2007.
  • Mager DE, Cox ER. Relationship between generic and preferred-brand prescription copayment differentials and generic fill rate. Am J Manag Care. 2007;13(2):347-352.
  • Express Scripts study links use of generic drugs to generic-brand copay differentials. Express Scripts press release. July 12, 2007.
  • New generics pose potential shake-up for prescription sleep medications, antihypertensives; patients could see big payoff. Medco Health Solutions press release. March 5, 2007.
  • Generic anticholesterol drugs save $126 million for plan sponsors, patients. Express Scripts press release. February 12, 2007.
  • Vandewater J. Express Scripts thrives on cost-conscious consumers. St. Louis Post-Dispatch. May 19, 2003.
  • Influencing policy, driving generic growth are top McKesson priorities, Figueroa says. Drug Store News. August 28, 2006.

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