Prescription for Health Care Savings

September 18, 2008

By Nick Horton

Prescription drug advertisements, it seems, are everywhere. We stumble upon them while watching television, while reading our newspapers and magazines, or while flittering aimlessly about the web.

Ever feel awkward or anxious in social settings? No worries: Paxil knows how you feel. How about sleep? Is it ever hard to slow your racing mind? Fear not: Lunesta can help. Or maybe you have restless legs syndrome? If so, youll find blissful stillness in the form of Requip.

In fact, the pharmaceutical industry ranks among the most pervasive of advertisers in American mass media. What many name-brand drug companies dont want you to realize, however, is that generic drugsmedications that have been deemed by the U.S. Food and Drug Administration as bioequivalent, or chemically and therapeutically identical to their branded counterpartsare often more widely available and more affordable than ever before.

The twofold appeal of generic drugsincreased savings, comparable efficacyhas not been lost on employers throughout the Puget Sound region. A gathering group of local companies, medical clinics, health-care nonprofits and state agencies are taking action to promote generic medications among their workforces, perhaps making the first steps in reversing the seemingly unstoppable spirals of rising insurance premiums and decreasing levels of care.

People talk about how many Americans [cant afford] health care, says Diane Giese, director of communications for the Puget Sound Health Alliance, a regional partnership of hospitals, physicians, employers and health plans. But one of the quickest and most effective ways that people can decrease their health-care costs is to choose generic medications.

Results May Vary

So how much cheaper are generics, exactly?

The cost benefits of choosing generic drugs over name-brand drugs can vary widely, but the FDA claims that generic drugs typically cost between 30 and 80 percent less than their branded counterparts. In short: By choosing generic drugs when possible, employees can drastically cut their employers health-care costs, resulting in more affordable co-payments and lower premiums for the employees themselves.

Generic medications, then, would seem to be the lowest-hanging fruit for companies in search of health-care relief. These drugs are clinically proven to perform as well as their name-brand counterparts. In most cases, theyre already on the market and are admittedly more affordable than the alternatives. In addition, its far easier to educate your workforce about generic drugs than it is to make them quit smoking, start exercising and lay off the Cheetos.

Pacific Northwest businesses in search of relief from the health care conundrum are turning to generics as never before.

Starbucks, for example, which provides health insurance to more than 80,000 employees in the United States, spends more money on insurance premiums than it does on coffee beans. In an effort to combat its escalating health-care costs, the coffee behemoth has offered no-cost generic drug plan options for certain preventative medications, including generic drugs for asthma, diabetes and coronary diseasea program that has garnered nationwide attention.

One of the main reasons we do this is just efficiency, says Kelley Hardin, director of benefits at Starbucks. There are limited resources on every health plan, and if folks can choose a cost-effective option, its better for everybody.

Lost in the Shuffle

But if generic medications are such godsends, why arent more Americans using them? The nationwide fill ratethe percentage of all prescriptions purchasedwas only about 63 percent for generics in 2006.

For starters, generic drugs wont sell themselves. Branded drugs that are advertised so effectively on televisionCialis, Nexium, Lipitor and othersare the property of the industrys heavyweight manufacturers: Eli Lilly and Co., AstraZeneca, Pfizer and the like. These companies spend hundreds of millions of dollars to research, develop and bring new drugs to market, and they are awarded patent protection for up to 20 years from the date when they begin developing a new drug.

Credit the 40 percent fill rate of name-brand drugs to the following three factors:

  • Out-of-pocket cost: Many Americans choose name brands because there is little or no financial difference to their pocketbooks. These patients, who are typically enrolled in employer-based health-care plans, often have the same prescription co-pay regardless of which drug they choose. The choice between drugs then seems inconsequential.
  • Legal protection: A fair number of branded drugs are still covered by patents. For patients who suffer from ailments that are treatable only by these protected drugs, there is not yet a viable alternative. Case in point: Erbitux, a treatment for colorectal cancer that was approved by the FDA in 2004, can cost each customer up to $100,000 per year of use. In some cases, particular brand-name drugs may actually perform better than generics for certain patients; in other cases, the opposite is true.
  • The power of branding: Americans are suckers for labels, a fact that the pharmaceutical industry has exploited in its rise to power. Prior to 1997, pharmaceutical companies were actively discouraged from engaging in direct-to-consumer (DTC) television advertising, chiefly because the FDA required drug companies to include comprehensive risk, side-effect and interactivity information in each commercial.

But since the FDA relaxed its restrictions on DTC television advertising in 1997, the drug industrys annual advertising expenditures skyrocketed from $220 million to nearly $5.38 billion in 2007. These investments have more than paid off: Pharmaceutical sales in the United States exceeded $286 billion in 2007, up from $81.2 billion in 1997.

Unfortunately, this meteoric rise in drug purchasing has contributed to a concurrent increase in employment-based health-care premiums, which have doubled since 2000. Employers across the country are being stung by rising health-care costs, forced to choose between cutting back benefits or increasing the contributions of already stretched employees.

Expiration Date Looms

For some businesses struggling with medical costs, however, time may be on their side.

When drug patents expire, other pharmaceutical companies are allowed to develop generic alternatives to the name-brand drug. If the newly developed generics are considered bioequivalentas most generics arethey are not subject to the exhaustive clinical trials that the FDA imposes on first-time drugs.

About three out of five prescriptions filled today use generic drugs, but in 1984 the ratio was closer to one out of every five prescriptions. In the coming years, generics are poised to gain even more ground.

Jennifer Wilson-Norton is the director of pharmacy at the Everett Clinic, a 300-doctor group practice with 16 locations throughout Snohomish County. The clinic actively educates physicians and patients about the benefits of generic prescriptions and has achieved a generic fill rate of 79 percent, well above the 63 percent national average.

The great news about generics is that theyre very high quality and theyre very cost effective, Wilson-Norton says. The exciting trend in the pharmaceutical world is that many therapeutically equivalent medications, which are used to treat ongoing conditions like diabetes or depression, are now going generic, too.

In the next four years, many of the largest-selling name-brand drugs in Americaincluding Fosamax, Prevacid, Lipitor and otherswill see their patents expire. Together, the annual sales of these soon-to-be-unprotected drugs amount to more than $60 billionbig bucks, no matter how you look at it.

Medication Education

Generic drug education faces some roadblocks, namely from branded prescription drug companies that still spend aggressively on drug promotion. In addition to their media buys, these large drug makers market directly to physicians and offer free samples of their products, which are often enticing to patients who are just beginning a prescription.

But many local organizationsincluding the Everett Clinic and Seattles Polyclinichave closed their doors to pharmaceutical reps. The board of the Puget Sound Health Alliance also recommends that hospitals and clinics limit or entirely disallow drug representatives from lobbying physicians directly.

Starbucks Hardin encourages businesses of all sizes to consult their insurance providers. We provide information directly to our partners to make them aware of generic drugs as an alternative to more costly medications, she says.

While health care costs will continue to rise nationwide, its clear that local companies in search of savings would be well served to inform their workforces about the benefits of generic drugs.

After all, those soothing Zoloft commercials arent going to disappear anytime soon.