Generics offer affordability for specialty Rx

BY Alaric DeArment

The U.S. healthcare system presents a paradox: It’s the most expensive system in the world, and yet it produces among the worst results among developed countries. According to the most recent report from the National Health Expenditure Accounts, spending on health care reached $2.6 trillion in 2010, or more than $8,400 per person and around 18% of the country’s gross domestic product.

Because these costs are expected to rise as more Americans retire and live longer, which will result in a greater number of people with chronic conditions, it’s as imperative to find a way to reduce the costs of health care in the long term as it is to ensure that everybody has adequate access to it. Specialty drugs for such conditions as cancers and autoimmune disorders are among the most expensive drugs in the world and already account for a rising share of drug costs overall — about 17% of global drug spending will come from biologics by 2016. Because of the unavoidably high costs of specialty drugs, one important way to reduce the cost of health care is to increase the use of generic drugs.

Generics have saved consumers and the healthcare system $1 trillion over the past decade, according to a new study released earlier this month by the Generic Pharmaceutical Association. Between 2002 and 2011, generics saved the country $1 billion every other day, totaling $193 billion in 2011.

“The remarkable findings demonstrated in this report are a testament not only to the generic industry’s tremendous accomplishments over the past decade, but [also] to the even greater achievements that are still to come,” GPhA president and CEO Ralph Neas said. “The ‘Generic Drug Savings’ study shows conclusively that, as Congress and the White House gear up for the fiscal challenges facing them in the coming year, generic and biosimilar utilization are the best places to go for the ‘offsets’ that everyone will be desperately seeking. The sustainability of the healthcare system and the national economy depend in significant measure on the availability of affordable medicines.”

The study, commissioned by the GPhA and conducted by IMS Health’s research division, also found that 2011 had the highest year-over-year increase in savings from generics since 1998, as savings increased 22%, compared with 2010. Savings from generics that have entered the market since 2002 have increased as well, totaling $481 billion over the decade. Meanwhile, 57% of the annual savings came from generic drugs for central nervous system disorders, such as antidepressants and anticonvulsants, as well as cardiovascular drugs. Nearly 80% of the 4 billion prescriptions written in 2011 were for generics, while accounting for only 27% of drug spending.

The trend seen in the GPhA’s study has been happening for some time now. But it’s also accelerating, and that means a lot for drug makers and policy-makers alike.

According to a study last month by IMS Health, global spending on generics is expected to rise from $242 billion in 2011 to more than $400 billion by 2016. Much of that will come from volume growth in emerging-market countries, but a lot of it is also due to the transition to generics in developed countries like the United States. The report noted that limited savings from expiring patents are prompting policy shifts to encourage more use of generics. And this has been going on for some time: Last year, another report by IMS found that while spending on branded drugs decreased by 0.7% in 2010, spending on branded and unbranded generics rose by 4.5% and 21.7%, respectively. That report also found that on average, more than 80% of a brand’s prescription volume is replaced by generics within six months of the expiration of the branded drug’s patent.

As analysts like IMS VP industry relations Doug Long have said before, the blockbuster model of drug development is coming to an end. While drug companies might still develop new treatments for widespread disease states like cholesterol and gastroesophageal reflux disease, new drugs to treat those conditions are unlikely to see the kinds of sales achieved by the likes of Pfizer’s cholesterol drug Lipitor (atorvastatin), whose sales reached $7.7 billion in 2011 but which lost patent protection in November 2011. Instead, many drug companies are shifting their focus to more expensive drugs to treat disease states with smaller patient populations, like cancers and autoimmune disorders. Meanwhile, the more common conditions will be treated more and more with cheaper generic drugs.

For policy-makers, the move toward generics means drug therapies will become cheaper, which will go a long way toward making health care overall cheaper. For that reason, it behooves them and also healthcare providers ranging from physicians to pharmacists to make sure patients know when a generic drug for their condition is available so that neither they nor their payers have to spend an arm and a leg to keep them healthy.

Though specialty drugs will account for a greater share of drug spending overall, biosimilars will help mitigate the costs of those as well. On July 10, President Barack Obama signed what some called a “historic” reauthorization of the Prescription Drug User Fee Act. Starting Oct. 1, the generic drug industry will pay $299 million per year in user fees over the next five years, which will help pay for more Food and Drug Administration staff and help clear a backlog of some 2,500 generic drug applications and inspections of more manufacturers’ production plants. But there’s another important part of the law: It creates a user fee program for companies that make biosimilars, for which the Patient Protection and Affordable Care Act created the country’s first ever regulatory approval pathway.

Federal officials and drug makers are still working on regulations for biosimilars, with the FDA releasing draft guidance on biosimilars in February 2012, but once those are done and in place, they’ll make available cheaper knockoff versions of biotech drugs. Currently, Teva Pharmaceutical Industries, Sandoz and Hospira are the main manufacturers of biosimilars for the European market, but other companies have been looking into the game also. In June 2012, Indian generic drug maker Dr. Reddy’s Labs and German drug maker Merck KGaA — which operates in the United States under the name EMD to avoid confusion with American drug maker Merck — signed a deal to develop biosimilars, mostly monoclonal antibodies, for cancer.

And the generic wave is good news for pharmacy retailers as well. According to an analysis by the Federal Trade Commission, generics tend to generate higher profit margins for retailers, and an analysis by Credit Suisse showed that the generic wave could add 6% to 7% to their earnings this year. The nearly 40 drugs expected to lose patent protection through 2016 will help that figure along in the years to come as well. They also have a multiplier effect because though a 30-day supply of a generic drug can cost as little as $4, a customer who comes in to pick up a prescription may also be tempted to buy supplements, makeup or soft drinks before heading out the door.


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Which area of the industry do you think Amazon’s entry would shake up the most?

The expanding role of pharmacy in ACOs

BY Peyton Howell

While the ultimate impact of healthcare reform is still being debated, one trend is clear: Accountable care organizations continue to pick up steam. An ACO is a unique healthcare delivery model defined as a network of healthcare providers who share responsibility for coordinating high-quality care across a specific patient population. The concept is not new and, in fact, is based largely on integrated health system models that have been successful for many years. However, this model was only applied to public payer models as part of the Patient Protection and Affordable Care Act two years ago. Since then, numerous ACOs have launched, and many more are in development. In fact, as of the end of May, 221 ACOs had been identified across 45 states.1 In addition, in July, the Centers for Medicare and Medicaid Services announced the selection of 88 new ACOs, translating into coverage for more than 2 million seniors in 40 states and the District of Columbia under Medicare shared savings initiatives.

Both public and private ACO models have been formed to lower costs, improve care and create better health outcomes. The ACA-mandated Medicare Shared Savings Program first sparked ACO development, and commercial payers now are creating their own private-sector ACOs. CMS also introduced the Pioneer Program, which allows ACOs to contract with the federal government and commercial payers.

The current ACO landscape appears to feature physicians and hospitals as the targeted players in the ACO model. In response, the pharmacist community has voiced its concerns that ACO programs are undermining pharmacists’ role in integrated care systems. Since the introduction of the MSSP, pharmacy groups have urged CMS to actively include community pharmacists in ACO-data sharing.2 While pharmacist groups seek ways to become recognized as integral parts of ACOs, they emphasize their lack of control over prescription drug costs — so they are not perceived as liable for ACO costs tied to drug spending.3

Pharmacy stakeholder groups have emphasized the important role of community pharmacists in improving patient outcomes and lowering overall healthcare costs. Data suggest that pharmacists in integrated delivery structures help improve patient care by managing patients’ medications.4 In fact, many pharmacists already are integrated into medical homes across the nation.

Expanded role of pharmacists

ACOs will present some key opportunities to pharmacists — from increased collaboration with providers to expanded access to patient information and interaction. Under the ACO model, all caregivers should have greater access to patient health information, enabling them to assemble more complete and accurate treatment plans. As pharmacists tend to have one-on-one interactions with patients, they are well positioned to assist patients in identifying gaps in care, seeking out appropriate care and gaining patients’ buy-in for the new ACO structure.4 Given the focus on quality performance and cost reduction, there will be a need for pharmacists in post-discharge medication management as well. Currently, some pharmacists in integrated care systems provide follow-up phone calls to ensure patients are taking the correct medications and receiving appropriate lab tests post-discharge.

Community pharmacists will face some challenges when trying to integrate into ACO programs, as the current structure minimizes the role of pharmacists in the patient care process. Currently, the MSSP and Pioneer Program do not have an explicit role for pharmacists in ACOs. Pharmacists do have the opportunity to become part of an ACO via subcontracting. It’s important to note, however, that being an official component of ACOs would lead to more meaningful collaborations with other ACO providers and would allow pharmacists to influence ACO governance, help dictate patient treatment standards and pathways, and share in savings with other providers and suppliers.4

Value-based environment depends on a more holistic view to costs and outcomes. Pharmaceutical treatment costs must be examined in the context of the total treatment received or there is a risk that expenses related to their use could be targeted for cost reduction even though the efficient use of pharmaceuticals can lead to overall lower medical costs.5

In the absence of having a clearly defined role in the ACO, pharmacists may be left out of discussions regarding program structure and metrics. And because of the gap in pharmacy-based quality metrics in ACO programs, there’s no way to track pharmacists’ contributions toward the organization. As a result, pharmacists will need to actively engage and communicate their value to ACOs and may need to redefine their workflows to collaborate with physicians, nursing staff and other suppliers within ACOs.


Pharmacist groups should continue to engage in dialogue with payers/ACOs to encourage community pharmacist inclusion in ACO structures. In doing so, pharmacists can bring attention to their involvement in helping to control costs and improving patient care. Given the ongoing pressure from the pharmacy community to include pharmacists in the ACO structure, the role of pharmacists likely will expand over the next few years. In the absence of guidance from CMS and payers, it remains uncertain how pharmacists’ scope of practice will evolve, though we may see pharmacy-based ACOs and quality metrics emerge in the near future. Regardless, pharmacists will need to remain flexible as their roles may become increasingly primary-care focused under the ACO model.

Peyton Howell, MHA, is president of AmerisourceBergen Consulting Services and SVP business 
development for AmerisourceBergen Corp.


  1. Leavitt Partners, Growth and Dispersion of Accountable Care Organizations: June 2012 Update.

  2. Yap D. Pharmacy to CMS: Explicitly include pharmacists in ACOs. American Pharmacists Association.

  3. CM/HTMLDisplay.cfm&ContentID=26185. Accessed March 8, 2012.

  4. Stein M. Pharmacists Pursue Legislative, Contractual Strategies To Gain Key Role In ACOs. Daily News Updates from Inside Health Policy.

  5.    CMS/Inside-CMS-03/01/2012/menu-id-316.html. Accessed March 1, 2012.

  6. Pharmacists as Vital Members of Accountable Care Organizations. Academy of Managed Care Pharmacy. Accessed February 16, 2012.

  7. ACO Success Depends on Optimal Medication Management. The Pink Sheet. July 23, 2012


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Which area of the industry do you think Amazon’s entry would shake up the most?

Pharmacists can help reduce 
Medicaid costs

BY B. Douglas Hoey, RPh, MBA

As states grapple with tight budgets, rising Medicaid costs and the anticipated expansion of Medicaid following the Supreme Court’s decision to uphold the Patient Protection and Affordable Care Act, policy-makers should consider how community pharmacists can help reduce expenses. In addition, new evidence offers a fresh reminder of the perils of managed care in Medicaid and the need for proper oversight of managed care entities.

Recently, Bloomberg government released a study of managed care plans in the nation’s five most populous states. It found the plans are delivering substandard care, characterized as “significantly and consistently worse than the national median.” It added that lower-quality care can lead to higher health spending through more costly medical interventions.

This comes on top of earlier questions about Medicaid managed care. The New York Times has drawn national attention to the diminished pharmacy access of Texas patients after a new managed care plan slashed pharmacy reimbursements by some 80%, forcing some pharmacies to close in the Rio Grande Valley. Separately, the state of Connecticut banished private insurance companies from its Medicaid program, citing “a diminishing confidence in the value of what they are providing.” In the Sunshine State, an examination by Georgetown University’s Health Policy Institute of Florida’s managed care pilot program found “no clear evidence that the pilot programs are saving money, and if they are, whether it is through efficiencies or at the expense of needed care.”

Alternatively, community pharmacists can help reduce Medicaid costs in a number of ways:

  • Drive greater use of low-cost generic drugs. Community pharmacies are already leading the way to maximize the appropriate use of generic medications — the most effective means to lower prescription drug costs without harming patients. Medicaid could save more than $600 million for every 1% increase in generic use. The Massachusetts fee-for-service Medicaid program has the highest generic dispensing rate in the nation, at 79.3%. If all other states achieved that rate, the Medicaid program could save $5.14 billion. States may forfeit savings from generic drugs if they rely on mail-order pharmacies owned by pharmacy benefit managers, commonly a part of managed care. PBM-owned mail pharmacies dispense generics 10% less often than local pharmacies, partly because they receive large manufacturer rebates for dispensing brand-name drugs.

Incorporate medication therapy management. Pharmacists provide one-on-one attention and prescription counseling to Medicaid beneficiaries with often-complicated health conditions and medication regimens. One percent of all beneficiaries account for 25% of expenditures. Expanding the use of low-cost MTM programs can help make a much greater dent in the $290 billion annual cost to the health system of poor medication adherence. Plus, community pharmacies afford patients access to low-cost immunizations and health screenings, in addition to receiving their prescriptions.

A state utilizing or implementing managed care into Medicaid should, at minimum, adopt some common-sense steps:

  • Transparency. Properly implementing aggressive transparency measures into contracts will result in savings that stay in the state, not funneled to an out-of-state corporation.

Patient choice and pharmacy competition. Allow all community pharmacies eligible to participate in federal health plans to participate in a state plan’s pharmacy network provided that the plan’s costs will be comparable or the same. This also assures that patients have choice and more taxpayer dollars remain in-state at local businesses.

Ensure fair compensation. While reducing costs, reimbursement must be fair and reflective of all aspects of providing prescriptions to Medicaid patients so that community pharmacies can continue to participate in the program. This should include accounting for Medicaid patients unable to afford their co-pay. In rural communities in particular, an independent pharmacy may be the only one for miles around, and loss of access can be devastating to patients.

Community pharmacists are committed to being part of the solution to reduce Medicaid costs. Managed care programs will not deliver the promised savings unless proper oversight is conducted and patient access to quality care is maintained.

B. Douglas Hoey is CEO of the National Community Pharmacists Association.


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Anna90 says:
Aug-30-2012 01:27 am

Medicaid costs are expensive enough today, lots of people get worry about their finances where there comes time to buy medicines. Reducing costs will can help make medicines more affordable, and that's very good because people usually spend lots of money on medicines and even apply for additional cash to buy some products. Pharmacy competition also plays an important role. All the pahrmatices want attract more consumers and successfully sale their products, but reducing costs can make the competition much stronger.



Which area of the industry do you think Amazon’s entry would shake up the most?