Segal's Capital Checkup December 12, 2002

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December 12, 2002

FDA DECISION TO APPROVE OVER-THE-COUNTER SALE OF CLARITIN RAISES QUESTIONS FOR HEALTH PLANS WITH RX COVERAGE

The Food and Drug Administration (FDA) recently approved sale of the allergy medication Claritin on an over-the-counter (OTC) basis. (To see the FDA announcement, click here.) As a result of this decision, effective December 14, 2002, Claritin (generic name Loratadine) and non-branded versions of Loratadine will not require a prescription and will typically not be covered by most benefit plans.

PBMs' Initial Reaction

Most PBMs have informed The Segal Company that if plan sponsors do nothing, Claritin will no longer be covered. This is probably the road most plan sponsors will take because traditionally OTC products have been excluded from coverage. (The primary reasons for excluding coverage for OTC medications are a lack of physician control, which raises clinical issues; an inability to control oversupply and fraud; the broad nature of the OTC product category; and the general low cost of OTC products.)

Cost Implications for Health Plan Sponsors

Within a few months, non-branded versions of Claritin (Loratadine) will become available on an OTC basis. This will most likely lower the cost of Loratadine. As we have seen in the past, with OTC status approvals such as Motrin, prices tend to vary dramatically between the initial brand name drug converted to OTC status and the store brands. This creates a situation in which Loratadine is widely available at an array of prices. OTC Loratadine will likely cost 50 to 80 percent less than prescription versions of Clarinex, Allegra and Zytrec.

In the meantime, health plans that do not cover OTC Claritin (Loratadine) may find that their costs rise as participants who used Claritin when it was a covered medication ask their doctors to switch their prescription to an equivalent drug that is covered by the plan.

Coverage Implications for Health Plan Sponsors

Claritin's switch to OTC status is triggering many questions for sponsors of health plans that cover prescription drugs, such as:

Should benefit plans cover OTC Claritin and non-branded OTC Loratadine?

If plans decide to cover Claritin, what benefit levels and PBM edits/processes should be used?

Should other non-sedating antihistamines continue to be covered?

What about other OTC antihistamines (e.g., Benadryl)?

What about other OTC medications that have prescription versions -- such as Ibuprofen (Motrin/Advil), Sudavent (Sudafed) and Randitidine (Zantac)?

What is the likely impact on plan costs and formulary rebates of various coverage options?

Can pharmacy benefit managers (PBMs) administer coverage for OTC medications?

PBMs Can Do More

PBMs have indicated to Segal that they are prepared to:

Cover Claritin (Loratadine) at the generic copayment,

Exclude Claritin (Loratadine) and the entire class of non-sedating antihistamines from benefit plan coverage, or

Exclude Claritin (Loratadine) and subject the entire class of non-sedating antihistamines to an increased level of copayments.

Considering Coverage for Selected OTC Medications

Now that PBMs' systems can limit therapies available and control OTC oversupply, plans may want to consider covering selected OTC medications. Plans can require a prescription be written directly for OTC medication or that a prescription written for a prescription drug with an OTC competitor be required in order to receive plan OTC reimbursement.

Many plan design variations are possible and can be effectively administered by most PBMs. Plan sponsors should explore available options for coverage changes and make informed decisions based on potential savings and the likely effect on plan participants' health and purchasing decisions. Ultimately, the coverage decision will have to be based on the overall goals and philosophy of a given benefit plan.

The key to any plan should be to provide reasonable coverage for all participants and create incentives to drive utilization towards the lower cost non-sedating antihistamines (possibly OTC products). Plan sponsors and participants may both be able to take advantage of low-cost OTC products through properly designed coverage levels that enable participants to enjoy lower out-of-pocket costs than are associated with typical brand name copayments and health plans cover significantly reduced claim costs.

Capital Checkup is The Segal Company's periodic electronic newsletter summarizing activity in Washington with respect to health care and related subjects. Capital Checkup is for informational purposes only. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.