Health plans seeking the cost savings of generic drugs must still remain vigilant for overcharges

The good news: Important drugs are going generic — a savings opportunity for employer-sponsored health plans, which should do what’s reasonable and what’s allowed to switch employees over to generics. The bad news: Health plans may still have to ensure they are getting the maximum cost savings. A case in point: Several health plans are suing one of the nation’s largest pharmacy chains, alleging that it colluded with a generic drug maker in order to rip off insurers and self-insured plans.

The lesson for employer-sponsored health plans may be: Learn about your new generic opportunities … but watch your back.

Good News First

More and more brand-name drugs are going generic. For example, Pfizer’s cholesterol drug Lipitor is now available in generic form: Watson Pharmaceuticals Inc., and Ranbaxy Laboratories Ltd. are manufacturing generic Lipitor. Here’s CNN’s list of important drugs going generic.

• Lipitor, a cholesterol drug, goes generic in November 2011.
• Solodyn, for bacterial infections, also in November 2011
• Zyprexa, used to treat schizophrenia, October 2011.
• Lexapro, for depression, March 2012
• Provigil, which treats sleep problems, April 2012
• Plavix, an antiplatelet drug which can prevent blood clots, May 2012
• Singulair, an asthma drug, August 2012

It’s important for plan sponsors make a pitch to employees to make those switches when possible. As this post reminds us, generics cost only 20% to 30% of what brand-name drugs do.

Now the Hard Part

Medicaid programs lost a combined $329 million in 2009 by failing to switch over to cheaper generics and opting instead to pay higher rates, Alex Brill of the American Enterprise Institute stated in this 2011 report. And worse,

Plans might have to worry about unscrupulous entities trying to take advantage of weak plan pursuit of generic alternatives, as illustrated in United Food and Commercial Workers Unions and Employers Midwest Health Benefits Fund v. Walgreen Co., which alleges fraudulent dispensing of brand-name drugs by Walgreens, a company that owns and runs 7,000 pharmacies in 49 states.

“Walgreen’s and Par engaged in at least two widespread schemes to overcharge insurance companies, self-insured employers and union health and welfare funds,” the United Food & Commercial Workers Unions & Employers Midwest Health Benefits Fund said.

Employer plans appear vulnerable to at least two forms of pharmacy fraud, according to the U.S. Health and Human Services Department’s Office of Inspector General:

• collecting brand name prices for dispensing generics; and
• “dispensing fees.”