The Battle Over Generics

As recently reported, several high-use, high-cost drugs are on the verge of losing patent protection. As generic alternatives become available, patients can be switched from these more expensive brand drugs to less expensive generic versions. The drugs most commonly prescribed include:

Plan sponsors and their PBMs are counting on the generic availability of these drugs to help reduce the double-digit cost increase trend. While this is not necessarily expected to reduce overall costs, it may slow the rate of increase.

To no one's suprise, drug manufacturers are scrambling to protect their hard won franchises. With billions of dollars at stake, brand manufacturers are not going quietly into the night. They are hard at work trying to either extend their patent expiration dates or to convert users of older drugs that are nearing patent expiration to newer drugs. If a patient can be transferred from an older drug to a newer version of that drug ­ the manufacturer's revenue stream continues. Otherwise, patients most likely will be advised to switch to the generic versions of these drugs.

Drug manufacturers use many strategies to extend patent protection for their products. Legal barriers (some valid, some invalid) are used to delay generic introduction as long as possible. Some are simply a matter of using the legal system to prevent patent violations. However, some tactics such as paying generic manufacturers to not introduce generic versions have been deemed illegal.

Manufacturer researchers constantly look for new drugs and work to improve existing drugs. In many cases, these research activities result in greatly improved therapies. If these new or improved drugs are developed prior to the patent expiration of the existing drug, the manufacturer may be able to aviod generic competition.

However, based upon recent news reports, for a small number of these drugs, these new drugs are only marginally better than the existing formulation or simply offer an enhanced level of patient convenience. A recent Wall Street Journal article highlighted this issue when it referred to certain new drugs as not being substantially different from existing drugs and, specifically, one new drug as being only 3% more effective than the existing drug. The article also mentioned attempts by one pharmaceutical company to switch patients from one drug to an identical drug that is marketed under a different name, but has a later patent expiration date than the original drug.

Although these may be perfectly valid business strategies for the pharmaceutical companies, they impact a plan sponsor's cost. An important question for the plan sponsor to ask is whether these new drugs provide sufficient value to justify their use over the generic forms of older drugs.

In the past, most plan sponsors were relatively passive regarding drug coverage. If a drug required a prescription, then it was a covered item. Little discretion or judgment was used in this matter. This continues to be a perfectly valid benefits philosophy for organizations that do not want to be involved in the medical decision making process. Leaving medical decisions to the clinician remains the most appropriate choice for many plan sponsors.

Today, however, many plan sponsors, both with and without the assistance of their PBM or other consultants, are becoming actively involved in making many of these coverage decisions. In some cases, these decisions may result in either outright inclusion or exclusion of a drug or drug category. In other cases, these decisions may result in prior authorization requirements or step-therapy guidelines. In yet others, these decisions may result in the placement of new drugs in higher cost sharing categories to encourage patients to use older, but relatively effective therapies.

The PBM industry has become much more active in this process over the last couple of years. Many PBMs understand that one of the most effective means of controlling benefit costs is to control the drugs that make up the benefit. Without some attempt to manage the benefit design, there is little hope of controlling the cost. Formularies and corresponding three-tier copayment schemes are an attempt to provide patients with financial incentives to use certain drugs, while not limiting access.

When a new drug becomes available, do the following.

• Review the information provided by your PBM (most now have monthly, one-page updates about new drugs).
• Determine whether the financial impact justifies the time you may spend evaluating the drug.
• Ask the PBM whether the new drug offers a significant clinical advantage to existing drug therapies.
• Using your own criteria, build a grid similar to the sample provided. Be sure to incorporate whatever criteria you feel is important. Make your own decision as to when a drug should be covered.
• Categorize the new drug according to these criteria.
• Compare your decision with that of your PBM. Restricted coverage could include: a higher copayment, prior authorization, step therapy or other interventions. The intent is to provide coverage only where needed and not to unnecessarily complicate the benefit design.
• If there is an existing drug being replaced, add the existing drug to the MAC list as soon as possible.

If the new drug can be excluded because it does not offer a significant clinical advantage to the prior therapy, a majority of the users of the old drug will be converted to the generic form. If step-therapy or prior authorization can be used to limit access, then a majority of the users of the old drug will still be converted to the generic but at some administrative cost. If no restrictions are placed on the new drug, some consumers of the old drug will be converted to the generic form, but many will convert to the new drug over time.