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Cost Control

Do You Have a Generic Drug Strategy?

The Baldwin Group
Updated: April 23, 2024
4 minute read

Fifty-four. That’s the number of brand-name prescription drugs due to come off patent this year.

Why should employers care?

Once a regular drug comes off patent, a generic can usually be developed that can lower costs over the long term… both for patients who take them and for the health plans and employers who pay for them. But it takes time. That’s because drug companies aren’t usually in a huge rush to develop generics, so there’s little competition for any that become immediately available, which can keep prices high. Plus, if drug manufacturers offer rebates for the brand name version, those can lower the price to the same level as (or lower than) a generic version. What this can mean for employers is that they don’t necessarily want or need to have the drugs coming off patent removed from the drug formulary used for their health plan. Waiting a year or two can be more advantageous price wise.

Example: Humira (came off patent in 2023)

Hypothetical cost comparison for one-month supply: Brand name drug cost versus generic drug cost

Brand Name Version

Cost: $7,000

Minus drug manufacturer’s rebate: $2,000

Net cost: $5,000

Generic Version

Cost: $5,600

Minus drug manufacturer’s rebate: $0

Net cost: $5,600

However, once more generics of a specific drug come to market, they can be less expensive than their brand name counterparts. In fact, copays for the generics can run nine times less!

Average brand name co-pay: $56.12  |  Average generic co-pay: $6.16

Source: Association for Accessible Medicines 2023 Cost-savings report

What strategies can help you manage prescription costs for your health plans?

Form a generic drug strategy

Generic drugs are made with the same active ingredients as name brand drugs and meet the same FDA standards. But according to GoodRx Health, generics can cost about 80 to 85 percent less than the same name brands, which can have a significant impact on plan costs.

Consider biosimilars

This is a new category of drugs that imitate how specialty drugs work — for about 15-20 percent less than their biologic counterparts. While these potential savings may not be as high as those of generic drugs, they can still cut costs.

“Fifty percent of drug costs can be attributed to only three-to-five percent of any given plan’s members. So, there’s a ripe opportunity to impact drug costs by focusing programs on a handful of people. The question is… how do you strike that balance between maximizing savings while minimizing member noise.” – Executive Vice President, Baldwin Group

Adopt a strategy for specialty drugs

According to healthcare research institute, IQVIA, specialty medications account for 53 percent of total annual pharmacy spending in the U.S. Since many of these specialty drugs and treatments require “special” handling or ways to give them (e.g., hospital stays, infusion centers, IV drips, etc.), costs are applied to both medical and pharmacy benefits. So, you need visibility and resources to analyze claims and utilization for both—and expertise to explore solutions to help ensure employees take their medications as prescribed.

Specialty drugs:

  • Biologics
  • Medications that required special storage & handling
  • High-cost medications that have limited distribution

Choose your drug formulary

Look for prescription drug plans or formularies that provide a mix of drugs that don’t rely on name brands, but instead include low-cost generics and cheaper alternatives that can work exactly the same way as the more expensive ones and still provide best outcomes. Think about:

  • What options you may have to cover new drugs that come to market, including those that follow the ones that come off patent?
  • How much disruption it may cause if/when you make changes to the formulary?
  • How much flexibility it offers to cover certain drugs, like specialty medications?
  • When it allows changes to the formulary. Quarterly? Semi-annually? Or must you wait until the beginning of the plan year?

Have a GLP-1 strategy

Glucagon-like peptide 1 (GLP-1) drugs have been super effective in reducing obesity and, as a result, lower heart conditions, high blood pressure, musculoskeletal issues, and healthcare costs. With increasing demand for these types of drugs, employers should provide an entire suite of support for employees that encourage healthy eating habits, exercise programs, and behavioral health services to ensure employees remain healthy and that the money spent on the drugs isn’t wasted.

“Most human resources decision makers are open to adding GLP-1 meds to their benefits packages.” October 18, 2023

Consider self-funded arrangements

To gain more optics into their drug costs, some employers are considering switching to self-funded plan designs. By gaining access to real data, they can better understand from where the high costs are stemming and work with benefits advisors to correctly analyze the trends and better manage drug utilization in their plans.

No matter what type of health plan you offer, partnering with an advocate who’s knowledgeable about this complex topic, watches trends, and helps identify the pitfalls will help you succeed.

Tags in this resource

biosimilar generic drugs pharmacy RX specialty drugs
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