Unintended consequences of mandatory generics
BY Gordon Hart, founding partner, Selectpath | January 31, 2013
As plan sponsors see insurers driving their plans to mandatory generic substitution to help take advantage of legislated pricing restrictions for generics drugs in some jurisdictions, this change may have more important consequences.
There is little doubt in the value of requiring employees to take generic equivalents while still providing the ability to cover a brand drug for unique medical reasons. Generics must meet Health Canada requirements to become a generic equivalent, so many of the arguments around inferior pharmacological effect are simply not true.
There may be even more of a reason to implement mandatory generic: coordination of benefits.
In situations where plan members have coverage in addition to access to spousal coverage, assuming there are drug cards at both employers, there are clear submission protocols to ensure that insurers and plan sponsors accept their own risk for their plan members.
In the case where one employer has mandatory generic and the spousal plan does not, employees could receive reimbursement for the generic cost under their own plan then submit the cost differential for the brand drug under the spousal plan for reimbursement of eligible costs. This would push significant cost to the spousal plan. What if your clients' organization was the provider of the spousal coverage? Is that the intention of the plan? Without mandatory generic a plan is exposed to brand drug claims from a plan member's spouse.
To help offset out of pocket expenses, brand drug companies are expanding their financial support programs to help patients maintain their brand drug use. These programs are designed to coordinate with pay-direct drug plans. Without third party payor management, a plan may be exposed to costs that could be recouped by the plan member elsewhere.
A few providers are building formularies to help plan sponsors leverage their buying power to drive pharmaceutical companies to bring off-patent drug pricing down to generic equivalent costs. These plans require mandatory generic to drive volume. Without formulary management, a plan may be exposed to general market rate drug pricing.
Organizations should consider implementing mandatory generic in their plans for the following reasons:
- help ensure maximization of substitution where therapeutically acceptable regardless of marketing noise of brand pharmaceutical companies
- ensure pharmacists are dispensing the best value for dollar (typically generic) regardless of their financial incentive (10% markup on brand will be much higher than 10% markup on generic)
- reduce the risk on coordination of benefits whereby your plan is now potentially exposed to significantly more costs than typically in the past (spousal plan institutes manditory generic and you do not)
- take advantage of pharmaceutical drug card and patient support systems that will provide financial support for patients to offset out-of-pocket expenses
- take advantage of new formulary arrangements that have the ability to drive down costs for off-patent drugs
While the actual savings to institute mandatory generic may not result in dramatic initial savings, failure to implement may result in significant unintended consequences.
The ideas expressed here are the authors' and do not necessarily reflect the publication's position. Want to write a response? Contact us here.
Read more from Gordon Hart, founding partner, Selectpath below or on his blog: