Exploring Cost Savings with Generic Switches

December 2010 - Vol.7 No. 12 - Page #38

Given the significant financial impact generic products can exert on the pharmaceutical budget, establishing a clear process to identify, evaluate, and manage product interchanges is a key responsibility for pharmacy directors. While product pricing is certainly one of the most important considerations in generic purchasing, the process is not as straightforward as simply identifying the least expensive product and making a subsequent formulary change. Successful product switches require a thorough analysis of a variety of factors, including reimbursement policies, potential shortages, utilization rates, as well as prescriber and patient perspectives.

Evaluating Potential Savings
Evaluating the potential savings from a generic switch can be challenging, particularly when the generic first appears on the market and is not always less expensive than the branded product. At Harris County Hospital District (HCHD), the nation’s fifth largest metropolitan health system located in Houston, Texas, we do not automatically switch to generic alternatives once they become available. Rather, it is our policy to continue with the branded product until the generic becomes more cost effective. By monitoring the outpatient and inpatient acquisition costs of these agents on a monthly basis (especially when multiple manufacturers exist), and conducting periodic drug class reviews, we have realized approximately $3 million in cost savings on generic switches over the past year.

Keep in mind, even when there is a cost saving opportunity, it may not always be worth it to make the switch. For example, a one-cent price change may not be significant enough to make a switch if the organization only uses 3000 tablets of the product annually, whereas investing the time and resources necessary to make the switch will provide a positive return on investment if the organization uses 25,000 to four million tablets annually. It is important to review product utilization to determine the true cost savings before investing staff hours in making a change to the formulary.

While pricing is key to making the decision to switch, there are some additional factors to keep in mind when considering this change. For one, third-party insurance carriers often dictate product use based on the coverage they provide. Even if a generic is priced below the brand, third-party reimbursement still might favor purchasing the brand over the generic. Patient satisfaction may also be a consideration. For instance, some patients may complain that one manufacturer’s product is too large to swallow. It is important to determine up front what points of consideration will enter the decision to provide formulary alternatives.

For facilities that take advantage of patient assistance programs (PAPs), there are additional considerations. Most of these programs offer assistance for branded drugs only; PAPs for generic drugs are rare. If the replenishment rate for branded products outweighs the benefit of switching to a generic product without compromising patient care, pharmacies should maintain the branded product on the formulary. However, this benefit is often short-lived as the manufacturer usually discontinues the branded product from its PAP soon after the generic becomes available, so this needs to be monitored closely.

Working with Medical Staff
Once the interchange is made on the formulary, you can generally count on the medical staff to prescribe the new product. However, when switching drugs with narrow therapeutic indexes (such as warfarin and digoxin) to generic equivalents, it is important to collaborate closely with physicians to ensure the best outcome. A more cooperative approach may also be required when switching drugs such as levothyroxine and antiseizure and immunosuppressant agents, as these products may exhibit differences in effectiveness when interchanging brand-to-generic and generic-to-generic drugs. In these cases, we rely on the FDA’s publication on Approved Drug Products with Therapeutic Equivalence to establish equivalence.

Best practices for managing interchanges with these critical agents include documenting any clinical differences prescribers observe in their patient population following a drug interchange. In our institution, physicians may prescribe branded products if they see an increase in seizures in patients on generic products or fluctuations in TSH levels for patients with hypo- or hyperthyroidism who were stable with the branded product, for example. Pharmacists must document issues with these generic interchanges and we will perform patient-specific medication usage evaluations to determine if all external factors remained the same. When a switch back to the branded product is authorized, all prescription refills are tracked for compliance issues. An organized process will likely decrease requests for branded products. Keep in mind that significant cost savings can often be realized when switching to a generic for these critical agents and direct collaboration with physicians will produce the best case scenario for all parties.

Making the Switch
Once the decision to interchange products is made, implementation requires careful planning and monitoring and several procedural steps must be accounted for. The new products must be stocked and made available in all dispensing locations. Software programs must be updated with current NDCs and accurate pricing. Additionally, an internal charge number should be assigned for billing. If the generic is not available in unit dose, a repackaging plan must be developed. Rather than immediately discontinue use of the branded product, pharmacy staff should be instructed to use the remaining inventory of the branded product until the supply is exhausted, thereby helping eliminate waste and outdated products.

When a contract pharmacy arrangement exists, consider the impact of product changes to their operation to ensure a coordinated effort. For example, HCHD uses an off-site contract pharmacy to dispense approximately 30% of its outpatient prescriptions, so maintaining product consistency is essential. Patients must receive the same product from the contract pharmacy as they would from a local HCHD pharmacy. Preparing for a product switch can take several days at the contract pharmacy due to factors related to equipment, authorization, shipping, and distribution. Our contract pharmacy uses automated dispensing systems that require calibration based on the size of the product. Therefore, if the outgoing product differs in size, adjustments to the automated dispensing system are required to ensure the integrity of the inventory.

Several tools are available to assist in maintaining generic interchanges. Purchase history databases housed in wholesalers’ ordering platforms should identify price changes on a monthly basis. Many GPOs offer automated programs that switch from branded to generic products depending on available contracts. Keep in mind that these programs may not always identify the cheapest product available on the market, rather they pinpoint the most cost-effective product on the GPO contract. So you may consider investigating pricing options outside of your contract.

Switching from branded to generic drug products offers significant cost saving opportunities. Nonetheless, making the decision to switch and then implementing it can be time consuming and requires careful planning. To ensure a successful interchange, pharmacies must exercise continual review and diligence post implementation.

Generic Shortages
It is not uncommon to see shortages of recently released generic products. Because the majority of the market will be switching from brand to generic simultaneously, often the manufacturer is unprepared to meet the sudden increase in product demand. The resulting back-order situation may cause buyers to revert to the branded product, creating another layer of drug shortage.

To ensure fair distribution during a shortage, the manufacturer often allocates the product allowing wholesalers to purchase only a certain amount at a given time. In turn, wholesalers further allocate product quantities to their customers. The shortage cycle usually continues in this pattern until the manufacturer makes adjustments to accommodate demand. Resolution of a shortage can take several weeks and, in some cases, several months. When this occurs, the expected cost savings from the brand-to-generic switch may not be realized. Diligent review, reporting, communication with staff, and bulk purchasing are important considerations when handling shortages.

Andrea Henry, PharmD, MBA, is a graduate of Howard University College of Pharmacy. She has 15 years experience in pharmacy services and completed a Black Belt in Six Sigma at The Methodist Hospital in 2005. An employee of the Harris County Hospital District (HCHD) since 1999, Andrea is currently the pharmacoeconomics and formulary manager and also serves as the facilitator of the Pharmacy and Therapeutics Committee and is co-editor of the Pharmacy Voice newsletter. She is a graduate of St. Mary’s University and University of Phoenix with a BS in biology and an MBA in health care management and is also adjunct professor for the College of Pharmacy & Health Sciences, Texas Southern University in Houston, Texas.

Isabell Pacheco, MBA, currently serves a dual role as the ambulatory inventory supervisor and interim pharmacy inventory manager for HCHD. Previously, she served as the senior regional coordinator at AmerisourceBergen Corporation where she managed patient assistance programs for seven years. Isabell earned a BS in business management and an MBA from the University of Phoenix; she has also maintained her certification as a pharmacy technician since 1997.

Anthony Lesser, MSHA, is the director of program development for the HRSA Pharmacy Services Support Center at the American Pharmacists Association. He received a bachelor of science in microbiology from Texas A&M University and a master of science in health care administration from Trinity University.


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