A legal dispute concerning generic drug deals that the U.S. Supreme Court is weighing has significant cost implications for employers' spend on workers compensation medical benefits and health insurance coverage for employees.
Actually, how the high court rules in Federal Trade Commission v. Watson Pharmaceuticals Inc. et al. will impact the health care spend of most Americans.
The case involves the legality of payments by brand-name drug manufacturers to generic competitors for temporarily keeping cheaper medications off the market. The payments stem from patent dispute settlements.
Such arrangements have been called “reverse payments” or “pay-for-delay” deals.
The Federal Trade Commission argued before the Supreme Court in March that a payment by Solvay Pharmaceuticals Inc., which holds a patent for testosterone gel AndroGel, to Actavis Inc. violates antitrust laws and hurts consumers.
Thirty-one states filed an amicus brief before the Supreme Court, arguing that pay-for-delay agreements cause drug purchasers nationwide to spend $3.5 billion more in annual costs than they would pay if the deals did not occur. The states say their residents and programs such as Medicaid pay those costs.
Business interests have lined up on both sides.
The National Association of Manufacturers argued in a brief that a court ruling favoring the FTC would discourage companies from conducting expensive research and would damage the U.S. economy.
America's Health Insurance Plans, in contrast, argued in a brief that health insurance plans and their customers pay for the lion's share of the $3.5 billion additional pharmaceutical costs generated by pay-for-delay agreements.
AHIP's argument speaks to costs that get pushed onto employer health plans and employees participating in those plans.
But there is also a workers comp impact.
Controlling amounts spent on pharmaceuticals is a common practice employers and their service providers apply to reduce overall workers comp claims costs. They do that by encouraging injured employees and their doctors to consume or prescribe generics when available.
Step therapy, for example, is a cost-containment strategy common in group health and workers comp. The idea relies on using claims analysis, utilization review and other tools to encourage prescribing the most cost-effective drugs first and then advancing to more expensive therapies only when necessary.
Because of such strategies, pharmacy benefit manager Express Scripts Inc. reports that in 2012, 76% of drugs dispensed to its customers' workers comp claimants were generics. Meanwhile, there is an 80% price difference between generics and brand drugs, according to based St. Louis-based Express Scripts.
But those strategies work only when generics are available.