Human Resources News & Insights

Health costs: How to combat the sneaky increases of generic drugs

While the spotlight is on the skyrocketing cost of specialty drugs right now, the price tag on generics is quietly trending upward. And if employers don’t take some necessary precautions right now, it could lead to some major headaches down the road.

In fact, there could be as much as a 15% increase in generic pricing in 2018 alone, according to Michael J. Staab, an employment attorney and consultant with Innovative Rx Strategies, LLC, an HR consulting firm that specializes in pharmacy benefit costs.

At the 2018 Mid-Sized Retirement and Healthcare Plan Management Conference in San Francisco, Staab explained why generic costs have been increasing significantly and what employers can do to minimize those increases.

A variety of factors

And generic price increases, specifically, are the result of a variety of factors — e.g., some generics are in limited supply, fewer drug manufacturers are making generics, etc.

Because of these factors, a number of generics no longer qualify to be on a pharmacy benefit manager’s (PBM’s) Maximum Allowable Cost Lists (MAC) and wind up being priced at a higher non-MAC/brand drug rate.

5 cost-control tactics

The good news is there are a number of simple steps employers can take to curb these increases. Staab urged employers to:

  • Monitor the deletion of generics from your PBM’s MAC list. Get the list (you’ll probably have to ask for it) and find out why drugs were deleted or added.
  • Understand what is and what isn’t in your PBM’s “generic bucket.” Again, this may involve some pointed questions directed at your PBM, but if you don’t know you could be unknowingly charged at the brand rate for drugs you though were generics.
  • Don’t allow non-MAC generics to be priced at brand discount.
  • Negotiate a Generic Effective Rate (GER) guarantee that includes all generic drug claims. The GER is the average discount on Average Wholesale Price (AWP) the PBM will take when it sets its MAC prices for generics. Staab told attendees that now is a good time to negotiate with PBMs — especially if you’re in the second year of a three-year contract — because there’s a lot of competition among PBMs, and your PBMs doesn’t want to lose you.
  • Set up preferred/non-preferred generic copays for employees. Also, adding minimum copays for generics can create zero-balance due (ZBD) claims for you. Staab used the example of a minimum generic copay as low as $15. At that minor amount, 45% to 50% of all generic claims have a $0 cost to the employer.
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