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Generic Drugs: What are they all about?

In light of the recent expiration of the patent protection for the popular cholesterol management drug Lipitor, it seems fitting to take a further look at how generics affect a plan and whether or not the cost-savings are as great as suggested.

With the loss of patent rights, generic versions of Lipitor can now go on sale which should result in significant discounts as this drug generated approximately $10.7 billion in sales last year. If a low-cost alternative (LCA) plan design is in place, the employees who are dependent upon it will have to turn to the generic version, consequently spending less overall on the drug.  As generic drugs continue to enter the marketplace and more popular drugs lose their patents, we should be seeing a dramatic increase in generic drug use, and yet this hasn’t been the case in Canada.

The key here is plan design. Many plan designs do not include mandatory generic or LCA provisions. This can be seen by the low overall generic fill rate in Canada in 2010, at 57.3%, which is even lower for private plans at 45%-46%. In cases where these plan designs are in place, there are many different ways to get around prescribing a generic drug. If an employee wishes to stay on the brand-name drug, under an LCA plan they can simply request that their doctor specify that the brand-name drug is needed and the drug will be reimbursed under the plan. Mandatory generic plans cover this loophole by only covering the drug up to the cost of the generic equivalent. Furthermore, once a generic drug is released a patient can simply be switched to another brand-name drug for which a generic substitution does not exist. These workarounds result in no cost-savings to the plan sponsor. Plan design limitations are needed to realize any true cost savings.

More education is also needed on the benefits of generic drugs both to the plan sponsor and to the patient. Brand name drugs like Lipitor and Crestor have extensive marketing campaigns behind them which have allowed them to penetrate the marketplace and become easily recognizable by consumers. Generic drugs on the other hand are viewed by some as less than their brand-name counterpart, both in quality and effectiveness, and may be used less for these reasons. In reality, a generic drug is directly comparable to the brand-name version in strength and quality but cheaper in price. Further knowledge about the effectiveness and high quality of generic drugs needs to be disseminated to plan sponsors and their employees.

Overall, the introduction of generic drugs for high-cost brand names such as Lipitor could affect the plan and result in greater savings for the plan sponsor, but we have yet to see any great cost-savings in this area. With the implementation of mandatory generic plan designs, combined with further education on the effectiveness and quality of generic drugs, Canadians should start to see an increase in the generic fill rate and an increase in cost-savings.

Source: Taryn Clark,

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Silverberg Group specializes in employee benefits consulting for companies of all sizes, and is Alberta owned & operated. From employee benefits programs to executive packages, we translate industry information into innovative options and solutions that best suit your organizational goals. Since 1996, over 800 clients have put their confidence in our industry expertise and our exceptional service. Let us become part of your company’s human resources team.

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