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AIS's Health Business Daily
Featured Story Aug. 5, 2009 PBMs Say Plan Sponsors Can Achieve 70%+ Generic Rates Without Aggressive Tactics Reprinted from DRUG BENEFIT NEWS, biweekly news, data and business strategies for health plans, PBMs and pharmaceutical companies By Jll Brown, Managing Editor, Pharmacy benefit managers (PBMs) that have achieved generic drug fill rates of 70% or more say aggressive management tactics are not as important as a focus on educational and communication tools and an overall formulary design aimed at obtaining the lowest unit price rather than the highest rebate revenue.
“Each percentage point increase in the generic substitution rate is worth approximately 1% in savings against a client’s total drug spend,” estimates Jerry Shipkin, vice president for clinical services and chief clinical officer at SXC Health Solutions Corp., parent of informedRx PBM. The national average generic fill rate is 63%, according to IMS Health, and Shipkin puts that figure at 63% to 65%, compared with informedRx’s rate of about 71%. So “we are really…saving our clients about 6% in total drug spend against the national average,” he claims.
“We really focus on promoting generic utilization,” he says. “We’re a technology-enabled PBM, and we’ve invested very heavily in analytics” to evaluate clients’ current spending and drug utilization mix in order to identify opportunities for savings. SXC sells PBM software applications, application service provider processing services and other technological and professional services to PBMs, insurers and other payers.
informedRx uses a “low-net-cost approach,” in which the company aims to get the lowest net pharmacy cost for clients, with an emphasis on generics, rather than working to maximize rebates, which would drive more utilization of brand-name drugs, Shipkin says. He adds that informedRx passes most rebates onto clients.
The PBM also recommends that clients have at least a $20 differential between copayment tier levels. “Not many years ago, the common spread was more around $15. We have found we get better success if the client is willing to go to at least a $20 differential between Tier One and Tier Two.”
Less common are aggressive management strategies such as requiring mandatory generics or charging a penalty for drugs that must be dispensed as written when a generic alternative is available, Shipkin says. But “we’ve started to see clients look for more aggressive-type strategies.” It depends “on what their appetite is,” he adds. Many plan sponsors “don’t want to get too tight on their management approach.” But others “are saying, ‘Look, I want to really push the needle on this,’” and adopt programs such as reference-based pricing, in which enrollees are charged a supplemental fee in addition to their regular copay based on the cost differential between the dispensed drug and a lower-cost alternative.
“There also is a lot of interest in OTC [i.e., over-the-counter drugs] and doing a lot of step therapy,” he adds. “We’ve had some clients who have begun to talk with us” about strategies such as excluding brands for certain drug classes like antihistamines where there are OTCs available. Similarly, “now that Prevacid has gone OTC, should they do something similar around proton-pump inhibitors?” FDA in May approved Novartis AG’s application to start marketing Prevacid 24HR in an OTC version; the drug becomes available OTC later in 2009.
4D Pharmacy Management Systems, Inc.’s overall generic fill rate is about 78%, says CEO Gerald Borsand. He says the company’s business model of focusing on the lowest possible unit costs has helped increase generic utilization. “We do not choose products that are going to generate rebates in categories that are going to increase brand utilization,” he says.
4D Pays Different Dispensing Fees
Like other PBMs, 4D also emphasizes “vigorous communications” with members to promote generics and with clients to highlight opportunities to adjust formularies, tiering and other benefit-design attributes that could increase generic usage. 4D also pays pharmacies a “better dispensing fee to fill a generic than to fill the brand” to encourage them to dispense generics when appropriate, Borsand says.
In addition, 4D makes available data from Medtipster, a company also headed by Borsand that supplies a database of pharmacy chains that sell low-cost generics, such as a 30-day supply for $4 and a 90-day supply for $10 or $12. Clients can access the database to steer members to certain pharmacies and waive or reduce copays for the generics at these stores to further incentivize generic use.
Finally, Borsand says, “our MAC [i.e., maximum allowable cost] list is extensive and updated every day. There’s no delay in getting items on the MAC list.”
Although HealthTrans’ overall generic fill rate is 68%, some clients go well beyond that rate, says President Steve Groover. “Employer groups of ours who really take a very active educational process with members absolutely will jump up closer to that 80% range.” One primary strategy adopted by those plan sponsors is intensive communication campaigns to inform plan members about generic equivalents.
In addition, “we’re starting to see the evolution of four-tier [formularies].” HealthTrans also has a number of clients using flat $3 to $5 copayments for generic drugs.
Furthermore, Groover says, HealthTrans has MAC pricing in place for 90% to 95% of drugs available on the market today. “I think that also has helped influence what the savings can be,” he asserts.
Groover contends that softer strategies work better. He says none of HealthTrans’ clients have instituted mandatory generic fills or a penalty for prescriptions that must be dispensed as written.
All three of the PBM executives say the generic fill rate will keep rising.
Two years ago, Shipkin says, he might have said the ceiling for generic substitution was 70%. But “we continue to see more generics entering the market.” Now, “75% seems like a really high but attainable number.”
Borsand predicts that “generic fill rates for all my competitors are going to rise because there are so many more products coming on the market,…[as well as] all the products that are coming off patent and the economic conditions of today — it has to happen.”
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