Generics Increasingly Used to Control Pharmacy Benefit Costs

March 24, 2008 ( - Employers have been using cost sharing and tiered copayment structures to decrease pharmacy benefit costs, but Mercer has found employers are looking to other cost-reduction strategies such as more actively encouraging members to use generic drugs and mail-order plans to further reduce costs.

According to a Mercer press release, to encourage the use of generics, some employers require members to pay the difference in cost between a brand-name and a generic drug, in addition to the generic copay, if they request a brand drug when a generic equivalent is available. Nearly half of respondents to Mercer’s survey (49%) are using such a program, often called a Dispensed As Written (DAW) 2 penalty, and over a fourth (29%) reported using a tougher version, DAW 1, which imposes the penalty even if the physician requests the brand drug.

Use of these penalties appears to be growing; an additional 9% of respondents said they will implement DAW 1 and 10% of respondents said they will implement DAW 2 within the next two years, the release said. Very few employers surveyed (4%) waived generic copays for a period of time as an incentive, but the use of targeted communications intended to educate members and/or prescribers about generic alternatives is increasing – 64% of respondents now use targeted communications, up from 48% in 2005.

The management of specialty or biotech drugs is also becoming increasingly important for employers, and a growing number of respondents say they have recently reviewed plan benefits and limits for specialty or biotech drugs (45% in 2007, up from 34% in 2005). Another 30% of respondents say they plan to review plan benefits for specialty drugs in 2008.

In 2007, prescription drug benefit costs rose 9.3% among large employers (those with 500 or more employees), while overall medical costs rose 5.1%, according to Mercer’s survey. Most employers use tiered copayments for their prescription drug benefit; the most common arrangement (72% at retail and 68% at mail order) is a three-tier structure with increasing copayment amounts for generic, formulary brand-name, and non-formulary brand-name drugs.

Among employers that offer a card plan, Mercer found 5% of employers with 500 or more employees and 10% of those with 20,000 or more employees have implemented four- or five-tier structures. More than a fifth of all large employers, and nearly half of those with 20,000 or more employees, require coinsurance for one or more drug categories.

Virtually all respondents provide a mail-order plan. In most plans (77%), members have a copay incentive to obtain drugs through the mail. A small portion of employers penalize members who do not use the mail-order plan for maintenance drugs. Six percent require an additional copay from members who continue to use retail pharmacies after a specified number of fills, and 10% discontinue retail coverage altogether.

Employers use targeted communication to educate members on the value of the mail-order plan (36%). Only 13% of respondents do not use any mail-order incentives or penalties.

Mercer also asked employers specifically about using incentives (by lowering or waiving drug copays/coinsurance for specific drug therapies) in pharmacy plan design to improve drug compliance and adherence. The survey findings suggest that this is still an emerging trend used only by a limited number of employers.

Only 6% of employers use financial incentives for diabetes treatment, the largest percentage in any therapeutic category. Over one-fourth (26%) of employers, however, are considering implementing a financial incentive program for diabetes therapy in the future, and approximately one-fourth are considering the same approach for other therapeutic classes used to treat chronic conditions (e.g., cholesterol, asthma, high blood pressure).

A slightly smaller percentage of employers now waive or reduce copays for specific classes of drugs, contingent upon the member's participation in a related disease management program. This incentive is most commonly used by employers for diabetes management (4% of employers report offering this benefit to employees). About a fourth of all respondents say they are considering this approach.

The survey was conducted in May 2007 as a follow up to Mercer's National Survey of Employer-Sponsored Health Plans 2006. All respondents to the 2006 survey with 500 or more employees were invited to participate and 508 submitted completed questionnaires.