DAW Penalties: Promoting Lower-Cost Generics Over Brand-Name Drugs

Top 3 Things You’ll Learn

  1. Outside influences contributing to brand drugs being dispensed in place of generics
  2. The impact of Dispense as Written (DAW) prescriptions on pharmacy plan costs
  3. How DAW penalties incentivize members to make more cost-conscious medication choices

A generic-first strategy has proven to be a successful strategy used by self-funded employers to manage high prescription drug costs. In fact, the strategy has contributed to industry-wide generic dispensing rates well over 80%. However, there are some situations in which generic drugs are not dispensed in place of high-cost brand name drugs. These challenges continue to plague payers, who struggle to keep up with sustainable ways to manage high-cost brand drugs while maintaining appropriate member access to medications. Fortunately, there is a way that employers can use benefit plan design to incentivize prescribers and members to be more cost-conscious in selecting brand-name drugs when generic equivalents are available.

Dispense as Written Prescriptions

Multiple outside influencers are driving employers to spend more than is necessary on brand-name prescription drugs that have generic equivalents available in the market. Among these influencers are drug manufacturers, who notoriously detail their drug products in physician offices and use direct-to-consumer advertisements to convince patients to request specific brand-name medications from their doctors. When either of these parties specifies that the pharmacist dispenses a multi-source brand-name drug when a generic equivalent exists, it’s referred to as a Dispense as Written (DAW) prescription.

DAW-1 occurs when prescriber writes a prescription dictating to the pharmacist to dispense the brand-name drug. DAW-2 occurs when the member specifically requests the brand-name drug instead of the generic version while at the pharmacy. In both instances, the plan continues to pay the high cost for the brand-name drug so as not to disrupt the member’s access to the medication.

Generic dispensing rates are trending between 80%-90% but Dispense as Written prescriptions continue to negatively impact pharmacy plan costs. DAW penalties help to promote cost-conscious decision-making without resorting to an exclusionary formulary.

Implementing DAW Penalties

The simple solution to address this challenge is with economic penalties on DAW-1 and DAW-2 claims. With DAW penalties in place, members pay their usual copay amount plus the cost difference between the multi-source brand being requested and the generic equivalent.

Consider Nexium®, a brand-name drug that has faced numerous price increases year-over-year despite being available in a generic over-the-counter formulation. By implementing a cost penalty to the member when the brand medication is dispensed by request over the available generic equivalent, the employer can promote cost-conscious decision-making without resorting to excluding the medication from the formulary.

Using Nexium as an example, here is how the cost might look with DAW penalties in place:

  • Nexium costs $250 and the generic costs $30 post-discount.
  • The member pays a higher non-preferred brand drug copay of $40 plus the difference between $250 and $30, which is $220.
  • The total cost to the member to receive the Nexium prescription would be $260.

Impact of DAW Penalties

DAW penalties allow employers to optimize their pharmacy spending and encourage both prescribers and members to make more cost-effective medication choices. This is because members have the choice to continue receiving their desired brand-name drug through their retail or mail-order pharmacy, unlike an exclusionary approach to managing costly medications. Employers can decide whether to have the DAW penalties apply during the member’s deductible period and after they reach the out-of-pocket maximum. Additionally, the penalty could be applied to either DAW-1 or DAW-2 scenarios, but best practice dictates that a penalty on both DAW-1 and DAW-2 claims is optimal to prevent prescribers and members from getting around a DAW-2 only penalty by having the prescriber request the drug.

Overall, this strategy is an impactful way for employers to take back control of their pharmacy plan spending. DAW penalties offer an opportunity for them to incentivize members to choose lower-cost drugs, while helping to increase the plan’s generic dispensing rate and drive down costs for both the plan and members. Given the high generic dispensing rates seen across the industry, DAW penalties would affect a small portion of pharmacy claims while yielding significant cost-savings.

Check out our Pharmacy Benefits Cost-Saving Strategies on-demand webinar to learn about DAW penalties and other sustainable solutions to lower your clients’ pharmacy benefits costs.

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