[BLOG]: Cost containment through the use of generic medications

November 25, 2014

There’s no hiding that hospital pharmacies have long been considered cost centers for healthcare systems. That positioning has been accentuated over the past 5 years, as the healthcare industry has seen a steady increase in high-cost, brand-name specialty medications that range from hundreds to thousands, sometimes tens of thousands, of dollars per dose. Nearly every hospital, however, has untapped opportunities to substantially improve efficiencies and improve costs. One important factor is improving how these hospitals use generic medications.

There’s no hiding that hospital pharmacies have long been considered cost centers for healthcare systems. That positioning has been accentuated over the past 5 years, as the healthcare industry has seen a steady increase in high-cost, brand-name specialty medications that range from hundreds to thousands, sometimes tens of thousands, of dollars per dose. Nearly every hospital, however, has untapped opportunities to substantially improve efficiencies and improve costs. One important factor is improving how these hospitals use generic medications.

Read more on generic drug prices

The use of generic medications is one of the main reasons why the rise in hospital pharmacy expenses has risen modestly throughout the last 5 years. The relatively low growth rate has been fueled by what many call the ‘generic cliff,’ the period between 2010 and 2013 when more than 40 brand-name drugs lost their patent protection. During this time, generic manufacturers had the ability to make their own lower-priced versions of well-known, frequently prescribed “blockbuster drugs” such as Plavix (clopidogrel, Bristol-Myers Squibb), Lexapro (escitalopram, Forest Laboratories), and Seroquel (quetiapine, AstraZeneca). Yet the list of branded medications that are expected to lose patent protection in the next 5 years is now much shorter and these medications are not as frequently prescribed as the blockbuster drugs named here.

Cigna will modify its formulary structure for generics in Florida

These trends have the potential to increase drug costs substantially for hospitals during a time when it’s more important than ever to contain costs. Hospitals and health systems must be prepared and have the right processes in place to take full advantage of financial savings each time a brand-name medication goes generic. Here are a few best practices to consider when driving generic drug usage as part of your cost-containment strategies:

1.     Maintain a lean inventory while keeping an eye out for drugs ready to move off patent.

To contain costs, a pharmacy must determine the current costs of purchasing medications and inventorying them. A key indicator is inventory turns. Ideally, you’re never sitting on a large inventory of any drug, especially a high-cost branded drug. This allows the pharmacy to turn the inventory quickly when a less-expensive alternative becomes available.

2.     Be aware of the price jumps that occur in the generic drug market when manufacturers stop producing a specific medication.

Less competition usually leads to increased prices, sometimes upward of 1000%. In these cases, pharmacy teams should work with clinical teams to determine if there are alternatives to medications that have undergone a significant price increase. If so, they should work to understand the benefits and cost savings of making the switch. 

3.     Speed transition to maximize savings.

Typically the most savings are seen when a branded drug first comes off patent. This is due to multiple manufacturers supplying the drug, which drives down costs. To maximize savings on “soon-to-market” generics, begin decreasing your on-hand inventory of branded product so that you can quickly begin using the generic drug as soon as it becomes available. This is one way of speeding transition. A few other ways to speed the transition process include:

·      Ensuring you have access to contract pricing through your group purchasing organization (GPO) when the drug becomes available;

·      Having internal processes in place to start dispensing as quickly as possible (entering information into IT systems, electronic medical records, hospital billing systems, etc.); and

·      Alerting physicians and healthcare providers when a generic drug becomes available, so they have advance notice of the need to adapt prescribing patterns. 

 

 

4.     Beware of “usage creep” and focus on utilization.

Although the cost of a generic medication is lower than a branded medication, the cost of any drug includes more than its purchase price. At Cardinal Health, we use the formula that Cost = Price x Utilization. When estimating cost savings when converting to a generic, it’s critical to factor in utilization. For example, if you buy a generic drug that costs half as much as the branded version, but your hospital’s utilization of the generic doubles over time, you’re not going to realize savings. Typically when a hospital deals with a branded medication, there are specific guidelines in place for when the drug can be used. When a generic replaces the branded product, however, the guidelines tend to slip. Pharmacy staff should work with clinical leadership to develop specific guidelines on the use of the new generic product to avoid the usage creep and increased costs that come with it.

5.     Understand the impact of drug shortages.

Drug shortages can have a major impact on cost-containment strategies. In fact, most drug shortages in the United States involve generics. According to the US Department of Health and Human Services, while injectables make up a small percentage of the prescription drug market, they accounted for 74% of all shortages in 2010. These include drugs used every day in hospitals such as morphine, norepinephrine, and electrolytes. These drugs are particularly vulnerable to drug shortages because manufacturing processes are more complex versus oral tablets and capsules.

[BLOG]: Effective collaboration can help to mitigate drug shortages

When generics are in short supply, hospital pharmacies are forced to turn to brand-name or more-expensive alternatives, which can increase pharmacy expenditures. A few ways to mitigate that impact include:

·      Informing financial, nursing, and clinical staff about the shortage and duration;

·      Notifying financial team if the shortage forces you to use brand-name alternatives; and

·      Taking advantage of failure-to-supply (FTS) claims within purchasing contracts. The FTS claim is valuable because if you are forced to make a purchase of a more-expensive drug, the manufacturer is sometimes required to provide refunds. Although there is proper paper work to complete and you must continue to try purchasing the lower-priced item, there are cost savings that can be found through a drug shortage.  

Keep these considerations in mind as you plan your cost-containment strategy. It’s now more important than ever for hospital pharmacies to take advantage of all potential savings available through generic drug cost containment. 

Mr Adcox is director, pharmaceutical contracting, Innovative Delivery Solutions, Cardinal Health. He is a second-generation pharmacist who leverages his 20+ years in both hospital and retail pharmacy experience to help hospitals maximize medication savings opportunities and improve their overall cost effectiveness.