Three industry trends drive the need for drug exclusions

The confluence of three major trends gave rise to the boldest drug exclusion strategies we have ever executed. Those three trends:

  1. Generic drug inflation
  2. Non-FDA approved drug use
  3. Rising cost of compounding

1. Generic drug inflation

The reasons for generic drug inflation vary by therapeutic category. And put together, the numbers significantly affect your drug spend. For 22 percent of the top-selling generics on the market, prices rose more steeply than inflation.1

An AIS report cited several causes for generic drug inflation.2

  • Scarcity of raw ingredients
  • Manufacturer consolidation and reduced competition
  • Drug shortages from quality and manufacturing issues
  • Discontinuation of drugs with low sales volume or low profit margins
  • Litigation between generic manufacturers and brand-name manufacturers around disputed rights to manufacture generics after the six-month exclusivity period following patent expirations
  • Artificially inflated prices of single-source generics
  • Two-and-a-half-year FDA backlog of new drug approvals

The drug exclusion strategy is one strategy Prime uses to help control rising drug costs. Prime also uses cost-share tiers for high-cost and low-cost generics, preferred pharmacy networks and utilization management programs.2

1. “Generic drugs: A bargain or sticker shock?” by John Russell. January 5, 2016. Chicago Tribune. Accessed at:

2. “Blues Plans Can Use Various Tactics to Mitigate Generic Drug Price Inflation,” by Angela Maas, July 2, 2015, Volume 14, Issue 7. Featured Health Business Daily Story. Accessed at:

2. Non-FDA approved drugs

The FDA estimates that several thousand drug products are marketed in the United States illegally without required FDA approval. (This estimate includes hundreds of drugs with different active ingredients. The drugs come in many strengths and dosage forms from multiple distributors and re-packagers.) Some firms specialize in marketing unapproved drugs.

The problem is that it’s hard to tell if a drug has FDA approval. All drugs have NDC numbers. They are all listed in the Physician’s Desk Reference. Often, non-FDA approved drugs are copycats of popular approved drugs. This is allowed under federal guidelines, provided the company submits data on the drugs' safety and efficacy. But many companies never send in the data, and the FDA does not have the resources to identify them.3  

Often, doctors themselves are unaware of the unapproved status of drugs. Doctors continue to unknowingly prescribe them. Drug exclusion strategies help, but we also need member and doctor education programs to support understanding and minimize disruption. The market has FDA-approved prescription options, as well as over-the-counter products.4

1. “The FDA takes action against  unapproved drugs,” by Michelle Meadows. FDA Consumer magazine. January 2007. Accessed at: information/enforcementactivitiesbyfda/selectedenforcementactionsonunapproveddrugs/ucm199776.pdf

2. Guidance for FDA Staff and Industry. Marketed Unapproved rugs – Compliance Policy Guide. U.S. FDA. Sec. 440.100. Marketed New Drugs without Approved NDAs or ANDAs. Page 12. Accessed at:

3. “Hundreds of unapproved drugs sold by prescription,”  By Rita Rubin, USA TODAY. Updated 9/18/2006. USA Today. Accessed at:

4. “FDA prompts removal of unapproved drugs from market,” March 2, 2011. U.S. FDA. Accessed at:

3. Compounding

Compounding does play a role in modern pharmacy. Some Americans have unique needs that require compound drugs. For example:

  • A member may have an allergy and needs a medicine to be made without a certain dye. These drugs are available in many different routes of administration including topical, oral suspension, eye drops, ear drops, injection, oral tablets and capsules.
  • Compounding multiple medicines into one treatment can help hospitalized members receive fewer administrations and hospital staff can save personnel time.

But the costs of compound drugs have risen dramatically over the past few years. Average per claim costs have risen from $98 to $195. The trend is prescriptions for compounds that are either not medically necessary or for conditions not approved by the FDA.

And 90 percent of compounds that are high cost are not used to treat "unique" needs.2 This has resulted in a 218 percent average cost increase in year-over-year spend on compounds.2

Along with the strong drug exclusions in the Performance formularies, Prime’s compounding strategy includes:

Next: Fighting rising pharmacy costs one tier at a time

  • Strong network credentialing
  • Auditing pharmacies
  • Managing how compound ingredients are priced

Prime works with plan sponsors to offer solutions that mitigate safety risks and control costs of compound drugs.

1. “Rising Cost of Prescription Compounds.” Solid Benefit Guidance. July 24, 2014. Retrieved from

2. “Regulating Compounding Pharmacies.” Health Policy Briefs. May 1, 2014. Retrieved from

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