In its heyday, Lipitor had caché. It was the Gucci or Coach of statins: Patients asked for it by name and physicians loved to prescribe it. It was able to command a price of $150 for a month’s supply when a close competitor, simvastatin, was available for at least 95 percent less, below $7.50 a month.
Things changed for Lipitor (generic name: atorvastatin), for when it lost patent protection, it lost pricing power — perhaps all of its pricing power — because generic Lipitor is now available for free. Historically, when a brand drug loses its patent, 90 percent of its volume converts to the generic version.
One pharmacy expert says that in its generic form, Lipitor has become a market commodity, no different from grains of rice or sugar or white sand on a beach. He adds that developments in the statin class might foreshadow what’s in store for many other classes.
The implication is that it could be a sea change for health plans and pharmacy benefit managers.
“The acquisition cost of generics has become so low that pharmacies can essentially afford to give them away, and the Wegmans supermarket pharmacy is doing that,” says Adam J. Fein, PhD, head of Pembroke Consulting and of the pharma blog Drug Channels.
The banner on the Wegmans pharmacy Web site asks, “High Cholesterol?” and offers free atorvastatin. The company will give customers up to 90 tablets through April 2013. The attention-getting ploy reflects what has happened to the price of generics and the intense competition among chain pharmacies.
“Recent government data indicate that simvastatin, the most widely dispensed statin, can be purchased by pharmacies at the wholesale rate of three cents a pill,” says Fein.
Fein says the rock bottom price of generics is affecting formulary and pharmacy benefit designs. “The average consumer price for a month’s supply of simvastatin is $5 or $6, so formulary design almost becomes secondary because some consumers are paying cash rather than using their benefit with a generic copayment of $10.
“Pharmacies are cutting their prices to compete in a flat market. The number of prescriptions is growing less than 1 percent per year, which means the only way for pharmacies to grow is to steal market share or acquire a competitor. This was kicked off six years ago by Walmart,” says Fein.
“The new development is that generic drugs are becoming consumer products, subject to the same rules of competition and discounting that you see with any consumer product.”
Fein says competition from retail pharmacies has several effects on PBMs and pharmacy benefit plans.
“There is a slowdown in mail order volume because retail pharmacies are lowering their prices to meet mail prices. Formulary designs for mandatory or recommended mail order are getting harder to enforce because consumers can price-shop at retail pharmacies,” says Fein.
“The second development is that health plans and PBMs are losing information on utilization and adherence because consumers are starting to fill their prescriptions outside of their pharmacy benefit,” he says. This development could affect the population health strategies of employers, providers, and health plans.
“The third effect of low-priced generics is that it puts tremendous pressure on PBMs and health plans to acknowledge the consumerization of the pharmaceutical industry,” says Fein.
He says this consumerization could change the nature of pharmacy benefit plans, especially as generic fill rates reach 85 or 90 percent of all prescriptions. “Longer term, you can imagine a world in which pharmacy benefits fulfill a true insurance role with coverage limited to expensive drugs. Inexpensive drugs don’t need to be on a benefit plan if, for example, you can get an annual supply for $50.”
Fein says this approach could turn out to be a cost-saving strategy for employers.
Fein added that as health insurance exchanges become a reality with a wider range of plan designs, they could offer low-cost pharmacy benefit plans that exclude coverage for generics.
Power of retail pharmacies
A core driver of the changes that Fein describes is the increasing leverage that retail pharmacies have in determining where consumers get their medications and the price they pay. As Fein pointed out, several years ago Walmart shook things up with its $4 copayment for a list of widely prescribed generics.
Others agree that retail pharmacies are disrupting the world of drug prices and pharmacy benefits. “Retail pharmacies enter into contracts with deeply discounted prices for exclusive selection of one generic while health plans or PBMs will also negotiate contracts with discounted prices for specific generics. So you could have a health plan trying to drive one generic and the pharmacy trying to promote a different generic,” says Randy Vogenberg, PhD, RPh, a pharmacy consultant. Vogenberg says that the pricing strategies of health plans or PBMs versus retail pharmacies may mean that consumers or employers are not getting the lowest price.
If that is the case, then Fein’s argument about letting consumers shop for the best price has some merit. The effect of removing low-cost generics from a pharmacy benefit plan and setting consumers free to get the best price can be offset by use of pre-tax health spending accounts, which already reimburse employees for drug costs.
Another benefit of letting consumers take responsibility for generic medications is that it promotes competition among retail pharmacies. One thing that could reverse the consumerization of generic medications and the disruption created by retail pharmacies by discounting generics is if the prices of generics start to increase. Free or very-low-cost generics could disappear, restoring the need for consumers to rely on their pharmacy benefit. However, Fein says prices for many generics continue to fall, especially for the former blockbusters.