Last week my blog focused on two danger zones that can increase your year-end prescription drug expenditures and derail your fiscal budget. This week I fill those potential financial potholes by highlighting three areas that can help reduce drug costs.

1. Take into account the utilization of new generics.

The US Food and Drug Administration (FDA) defines a generic drug as “a medication created to be the same as an already marketed brand-name drug in dosage form, safety, strength, route of administration, quality, performance characteristics, and intended use. These similarities help to demonstrate bioequivalence, which means that a generic medicine works in the same way and provides the same clinical benefit as its brand-name version. In other words, you can take a generic medicine as an equal substitute for its brand-name counterpart.”

Note that generic drug manufacturers do not need to repeat clinical research to prove safety and efficacy that was already proven with the branded medication. Once the brand manufacturer’s patent expires, this opens the door for other drug companies to manufacture generic copies. The lower manufacturing costs derived from less upfront investments in clinical trials and the competition from multiple manufacturers results in greater discounts on the purchase price—typically, 80-85% less than the brand counterpart. Appreciate however, that some first-time generics have a period of market exclusivity so the price may not be substantially less than the brand for the first several months.

Key Drugs Losing Patent Protection in 2018 include:

2. Project the savings associated with drug rebates.

Rebates are under a lot of scrutiny lately. I won’t cover this extensive topic here, but appreciate that more open dialogue should transpire with your program manager. The conversation should encompass all direct and indirect remuneration (DIR) fees. The Centers for Medicare and Medicaid Services’ (CMS) definition for DIR fees is additional compensation received by the program manager after the point-of-sale, that serves to change the final cost of the drug for the payer (such as rebates), or additional concessions that affect the price paid to the pharmacy for the drug.

3. Validate the savings methodology to forecast savings associated with your 3rd party intervention program.

Many employers are approached by vendors that guarantee to save them money through some healthcare intervention or campaign. Choose vendors that are willing to disclose their savings methodology with your advisor and data analytics vendor. Your healthcare data can be used to substantiate the performance of the program and forecast future savings.

What can you do?

You and your advisors can:

• Check the FDA’s website for first-time generic drug approvals.
• Many PBMs also publish comprehensive updates on new drug approvals for their customers.
• To verify the availability of the generic and to compare the generic price to the brand version, online pricing resources are available such as GoodRx.
• Benchmark your generic utilization regionally and nationally against other similarly sized employers.
• Evaluate your plan design and determine how your program manager promotes generics. Are pharmacy network discounts contingent on insurance contracts containing a provision that prohibits a pharmacist from informing customers of lower cost options?

President Trump cited this practice in his national address last week as “a total rip-off, and we are ending it.” His written proposal “may prohibit these gag clauses in plans for Part D, the Medicare drug program.”

• For budgeting, understand how the new generics will be priced under your plan.
• Will the newer generics apply against the generic guarantee?
• What formulary coverage tier will be applied to the new generics?
• For rebates, understand if program manager incentives are appropriately aligned to promote lower cost alternatives that benefit the consumer.
• For high cost drugs managed under a prior authorization program, understand how the approval criteria may impact the rebate opportunities offered by the pharmaceutical manufacturer.
• Are there restrictions within the prior authorization process that prohibit promoting lower cost alternatives or substantiating the medical diagnosis?
• Utilize your data analytics vendor to validate your 3rd party intervention program savings.

I know this is a lot to take in. I’ll leave you with this quote:

“Failing to plan is planning to fail.” Alan Lakein

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