Spending on prescription drugs has become the fastest growing component of health care expenditures today, rising more quickly than the cost of hospital or physician services. In fact, spending for prescription drugs has more than quadrupled since 1990.

There is a simple solution for health insurance advisors who want to help employers reduce drug costs: generics.

Generics can cost as much as 80% less than their brand counterparts, according to the Generic Pharmaceutical Association. In 2005, the average retail price of a generic prescription drug was about $30, compared with $100 for the brand name drug.

Certainly, employers and their benefits advisors have made great strides in efforts to promote generic use, but the Congressional Budget Office estimates generics can save consumers up to $10 billion more per year at retail pharmacies with no sacrifice in quality or effectiveness.

Here are 3 ways your client employers can cut drug costs and encourage the use of generics and therapeutic alternatives by employees who currently rely on brand medication.

1. Make sure the employer’s pharmacy benefits program includes a well-managed formulary.

In 2006, close to 100 new generics became available, including drugs to treat common conditions such as high cholesterol and heartburn or acid reflux. Among the most popular generics to hit the market last year was simvastatin, the generic equivalent of Zocor, a drug used to lower cholesterol.

Moving brand drugs to a client’s most expensive coverage formulary tier when new generics are introduced will encourage employees to try the generic in place of the brand. Generally, employees will consider switching to a generic when the co-payment for that drug is $20 to $40 less than what they pay for the brand. Getting the client’s health insurer or pharmacy benefits manager to send quarterly updates to employees about formulary changes is one easy way to encourage employees to take advantage of newly introduced generics.

Employers can also require that employees use a generic in place of a brand for a fixed amount of time, say 6 months, or require that brands with generic equivalents be pre-authorized by the health plan prior to payment.

Employers can also consider waiving or reducing co-payments for generics as an incentive to get members to switch. Many of the Blue Cross and Blue Shield health plans have successfully increased their use of generics with this approach. Generally, once employees try a generic, it is unlikely they will return to the pricier brand drug.

2. Educate employees about value of generics and therapeutic alternatives.

Along with a well-managed formulary, employee education is an important tool for increasing the use of generics. To break the brand habit, employers must remove any perceived differences in quality or effectiveness that employees may have about generics.

Employers should encourage employees to speak with their doctors and pharmacists about generics and should demonstrate the savings they can achieve by switching. For example, a $20 difference in a brand versus generic co-pay can save an employee $240 annually in drug costs. Employees who take multiple drugs save even more with generics. Most physicians will appreciate the cost advantages of generics and improved compliance and health outcomes that can result when affordability of medications is no longer a barrier for patients.

When there is no generic available for a brand, a physician may prescribe a generic therapeutic alternative, which is not the exact chemical equivalent of the brand name drug it may replace, but it treats the medical condition in the same way. An example of this is Lipitor, which is used to lower cholesterol and does not have a generic equivalent. Many doctors feel that the generic form of Zocor, simvastatin, can successfully treat this same condition. Because a pharmacist cannot automatically substitute simvastatin for Lipitor, as they can when Zocor is prescribed, it is especially important that employees speak with their doctors about what might work for them.

Health insurer or PBM websites can help keep employees informed about generics, including recent approvals, pricing tools and questions for doctors and pharmacists.

3. Analyze current drug usage and isolate opportunities for improvement.

To increase the use of generics, it is important for client employers to know which drugs are most prescribed for their employees and which cost the most.

While it’s likely that brand drugs prescribed for heart disease, high cholesterol and diabetes will top the list, there may be other less apparent contributors, such as drugs that treat depression or allergies. Once these health issues are identified in aggregate, you can work with clients’ health insurers or PBMs to address these areas. For example, if seasonal allergies are more widespread in certain office locations, you may consider a targeted program to educate employees about generics that treat them.