Generic Drugs Produce Big Savings

June 4, 2004
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GRAND RAPIDS — Two health plans that account for a large share of the West Michigan market have reported saving millions on prescription drugs in recent years.

The savings come through increased use of generic medications — savings that ultimately affect premiums paid for employee health coverage.

Blue Cross Blue Shield of Michigan reported saving $97 million over a two-year period through a higher generic dispensing rate.

Priority Health, the Grand Rapids-based health plan with more than 425,000 members in western Michigan, also has seen solid increases in the generic dispensing rate in the last two years. More than half of the member prescriptions Priority Health paid for during the first quarter of 2004 were filled with generic medications.

“We believe generic drugs are one of the most cost-effective tools in health care,” said Ed Keating, director of pharmaceutical services at Priority Health.

Generic medication dispensing rates are growing nationally, as health plans try to get some control over runaway health-care costs. The plans promote use of generics to pharmacists, physicians and consumers and build incentives for their use into benefit packages for subscribers.

Priority Health reports the average price of a name-brand prescription at about $90 vs. $16 for a comparable generic drug.

Blue Cross Blue Shield of Michigan reports the average price of a generic prescription to be about $20, compared to more than $90 for a brand-name medication.

The health insurer, which has some 4.8 million members statewide, paid out $2.57 billion for prescriptions in 2003. That compares with $2.39 billion in 2002 and $2.41 billion in 2001.

The $97 million in savings that Blue Cross Blue Shield of Michigan incurred from the fourth quarter of 2001 to the fourth quarter of 2003 stems from a major push to promote the use of lower-cost generic medications over brand-name drugs.

The promotion helped drive up Blue Cross Blue Shield’s generic dispensing by 4.3 percentage points statewide, to 44.7 percent.

Prior to beginning the generic promotion, known as “The Unadvertised Brand,” and targeting consumers and pharmacists, Blue Cross Blue Shield of Michigan was experiencing a decrease in the use of generic drugs among its subscribers.

Atheer Kaddis, director of clinical pharmacy services, said, “We helped generic drugs become a topic of discussion around office water coolers.”

Kaddis attributes the rising generic use rate to several factors: the wide cost difference between generics and name-brand drugs; the Blues’ awareness campaign; reduced consumer costs thanks to health benefits that include lower prescription co-pays for generics; the rising costs of name-brand drugs; and the greater availability of so-called “blockbuster” drugs in generic form.

Among the name-brand medications that have become available as a generic in recent months are Paxil, used to treat depression, and Prilosec, used to treat stomach ulcers and severe heartburn.

Kaddis estimates that by 2008, $43 billion worth of blockbuster medications will lose their patent protections, allowing generic drug makers to offer lower-cost versions.

At Priority Health, greater consumer awareness and providing financial incentives for members and pharmacists to use generics when applicable has pushed the generic dispensing rate to 51 percent as of the first quarter of 2004.

That’s up from 46 percent for all of 2003, 42 percent in 2002 and 40 percent in 2001.

Every percentage point increase in the generic dispensing rate equates to about $2.2 million in savings for Priority Health, which last year spent $170 million on pharmacy for members.

To encourage the use of the lower-cost drugs, Priority Health pays pharmacists a higher dispensing fee when they use generics and it meters generics use by physicians, Keating said. The health plan wants to reach a generic dispensing rate of 54 percent for 2004 and 60 percent in 2005.

Providing the financial incentives and getting the participation of all players — patients, physicians and pharmacists — are keys to driving the dispensing rate higher and generating further cost savings through the use of generics, Keating said.

“The puzzle has to have every piece fit well.”     

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