ASK DR. BAUGHAN                                                         November 19, 1999

BRANDS, GENERICS AND FORMULARIES

I attended a meeting this week in which I reviewed medical expenditures for patients of a managed care health plan.  One of the major points of discussion was about prescription drug costs.  The costs of medicines are a major expense in health care, whether it is traditional insurance, managed care or Medicare, and certainly for those paying out of pocket.  Several strategies that have appeared are differing co-payments (or total cost) of generic drugs versus brand names, and then formularies, or limited drug lists, of medicines available under different plans.  Is this valid and safe, or are insurance companies cutting corners in unsafe ways?  This is an subject of considerable debate, frustration and confusion, so I hope I can throw a few beams of light in a cloudy area.

First, there is little rhyme or reason for drug costs other than, “What the market will bear.”  The rationale for the expense of any drug is always, “There is a lot of expense that goes into the research and development of a new drug.  Many drugs get weeded out.  So the successful, useful drugs that prove their value through multiple levels of FDA testing must pay for not only their cost of production, but a lot more.”  This is true, but does not explain why a new blood pressure medicine is likely to cost $35-50 per month, while almost all cholesterol medicines will cost $90-100 a month.  They go through the same stages of research and development, and it is not as though the raw materials are so different as to make the difference in cost.  Competition sometimes plays an influence, but as long as there is not a more concerted demand for lower prices, drugs similar in effectiveness for a certain disease will hover close to the same price, just like gas in gas stations.

What are generics, and are they lower quality?  When a new drug is developed, it can obtain an exclusive patent for that particular drug for 17 years.  So there can be no generics until a drug has been around 17 years.  Then if the drug is popular enough, generic drug companies will manufacture it and compete for price.  They still have to maintain quality controls for purity, accuracy of dose, and other FDA parameters.  So how are they any different?  They will have different “fillers” - the stuff that holds the pill together such as starches, flour, etc. and different coatings and colorings.  These possibly might effect how well the pill dissolves and the medicine is absorbed, but the active ingredient must be the same chemical.  So there is no generalization that generics are not as “strong” or “effective,” because they are made by many different companies with all sorts of fillers, sometimes essentially identical to the brand name.  Some companies will even sell their formula to generic companies.

Formularies are lists of drugs offered to influence the doctor or patient by persuasion or financial incentives, such as varying co-payments.  They will always encourage generic substitution, which will be the lowest cost.  Then they may have tiers of choices to encourage less expensive choices.  Any quality concerns here?  When I have had a particular need for a particular drug for a patient, I have not found prohibitions.  What I do encounter is considerably more complicated decision making and administrative processing.  Why the cost differences then?

Convenience costs more.  In general, blood pressure medicines that are taken once a day cost more than those taken 2-3 times a day.  Who should pay for that convenience - the individual or the collective?  Minimizing risk of side effects costs more:  antihistamines for allergies that are generic and over-the-counter may work well for some, but they would be taken more frequently, and are more likely to cause drowsiness.  Should we skip them, though, for once-a-day prescription medicines that cost ten times as much?  Sometimes medicines are so similar that there are no essential differences.  In this case it is simply a matter of doctor and patient awareness of cost that can make a big difference, or the insurance company may get a bulk discount for a certain drug.  There is no quality of medicine issue, here, but an administrative nightmare trying to keep straight which company gets the best deal on a medicine I want to prescribe for the patient in front of me.  However, unless prescription drug costs are regulated, the people footing the bill directly (the insurance companies) will continue to try to exert influence until the people ultimately paying the bill (the patients) find a better way.