The Role of Self-Medication in Cost-Containment in the United StatesDecision Resources
April 6, 2005
Additional InformationBusiness Implications
Although the default status of medicines in the United States is nonprescription, the Food and Drug Administration (FDA) has traditionally been very cautious in regard to Rx-to- OTC switching (i.e., the reclassification of prescription drugs as nonprescription medicines). Far fewer compounds are available in OTC form in the United States than in the other major self-medication markets. However, the FDA has stated that it intends “to become more proactive in recommending key potential switches."
Given that prescription drug prices are generally significantly higher than the prices of comparable OTC medicines, manufacturers usually have a vested interest in maintaining the prescription status of their new chemical entities as long as possible. However, as a drug approaches patent expiration and the threat of generics competition, it may be advantageous for the manufacturer to switch the drug to OTC status as a way of extending its life cycle. The timing of the switch is crucial: it should be early enough to develop consumer loyalty to the OTC brand but late enough to exploit the full sales potential of prescription sales.
When a drug is switched to OTC status, health plans often end reimbursement of other drugs within the same class or move these drugs to a higher formulary tier that incurs copayments higher than the OTC drug’s retail price. On average, copayments for third-tier drugs (i.e., nonpreferred brands) exceed $30 per month. The substantially lower prices of OTC drugs compared with competing prescription drugs have persuaded many health plans to add certain switched drugs to their formularies, often in a new tier that is subject to a very modest copayment (e.g., $5). According to a recent managed care survey, 31.5% of HMOs covered at least some OTC medicines in 2003.
Recent FDA judgments suggest that the pharmaceutical industry may need to be somewhat bolder in its dosing proposals in switch applications. In the past, manufacturers have assumed that reducing the dosing from standard prescription levels would enhance their prospects of succeeding with their switch applications, but the opposite has been the case in some instances. The FDA has shown that it is unwilling to approve switches that may use subtherapeutic dosing.
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