Conventional wisdom says health insurers nudge patients toward generic drugs whenever they can, saving everyone money in the process. As my colleague Bob Herman reports, however, that’s not always true.
Case study: Mylan recently launched a generic version of the popular Advair inhaler at a 70% discount.
- But Express Scripts, which manages pharmacy benefits for 100 million people, is telling pharmacies to dispense the more expensive Advair brand because it won't cover Mylan's generic.
How it works: Express Scripts says brand-name Adavir, which is made by GlaxoSmithKline, is the cheapest option after accounting for rebates.
- That means GSK must be offering rebates somewhere on the order of 70%, to beat Mylan's price.
- Express Scripts will pass most of those rebates along to its clients — employers and insurers.
Why it matters: Express Scripts is doing what PBMs are supposed to do — negotiating big discounts, rewarding the lowest-cost drug, and passing along the savings.
- But because those discounts are administered as rebates, not everyone will benefit.
- The preference for a brand-name drug with a higher list price is bad news for patients who have high out-of-pocket costs, and for employers whose contracts with Express Scripts don't allow them to keep all of their rebates.
Yes, but: Generics still make up 90% of filled prescriptions.
- And PBMs make sizable profits off generics through practices like "spread pricing" — in which they charge their clients more for drugs than what they pay pharmacies, and keep the difference.