GM faces up to drug problem

General Motors, while eliminating 35,000 jobs on one front, is enlisting retirees like John Bond on another: its annual US$200 million ($332 million) bill for cholesterol drugs.

All the 75-year-old Bond has to do is switch from Pfizer's Lipitor, which costs US$3.33 a pill, to a 90c generic copy of Merck & Co's Zocor.

If all 250,000 people on GM benefit plans who take cholesterol reducers made the change, the company's annual treatment bill would fall by as much as 59 per cent to $82 million.

"This is one of the biggest opportunities GM has ever had in lowering our costs for treatment," says Cynthia Kirman, GM's corporate pharmacist. While GM doesn't have an estimate for how many patients now taking Lipitor, Zocor and competing branded drugs will switch to the new generic, she says the savings will be "significant."

GM is the largest private provider of health insurance in the US, with 1.1 million beneficiaries among former and current employees. The Detroit-based automaker may be in a position to wrest the biggest savings from the end of patent protection for Zocor, a drug in use for 15 years, should enough people switch from more costly pills.

Employers and insurers may save $49 billion by 2011 as they try to substitute less expensive generic drugs for 70 name-brand drugs set to lose patent protection within five years.

"We have seen the generic use rate inch up in this country in the last decade," says Ron Fontanetta, a principal at the consulting firm Towers Perrin in New York. "What makes the next few years most compelling is, that's likely to accelerate."

Bond, who retired from GM in 1988 after 38 years, had a heart bypass operation in 2001. He uses a spreadsheet to manage his and his wife's out-of-pocket prescription-drug expenses. Last year, the former Oldsmobile manufacturing engineer spent about US$1226 for drug co-payments, or his share of prescription costs under GM's benefit plan.

The total included US$140 for Bond's Lipitor prescription co-pays. He figures a 90-day supply of the drug costs GM about US$315, which works out to US$1278 a year.

Switching to a generic cholesterol-fighting drug would cut Bond's co-pay to US$10 for a 90-day supply, or US$40 a year, GM spokeswoman Sharon Baldwin says. At 90 cents a pill, that would leave US$288.50 for GM to pay, a saving of almost $1000. Four of Bond's eight regular prescriptions are already generic, he says.

"Follow the dollar," Bond says. He meets monthly with 60 other GM retirees in the Lansing, Michigan, area for lunch, at which health-care costs are a major topic.

"People look at their out-of-pocket costs. If they can do something to reduce it, they're going to do it."

The GM retiree newsletter that Bond got this month lists 12 drugs that will come off patent in 2006 through 2008. Benefit participants are encouraged to ask their doctor whether they are eligible to make a switch, based on their health. Bond says he plans to ask, and will switch if possible.

Rick Wagoner, GM's chief executive officer, has said that the automaker's US$5.4 billion in health-care costs were a leading cause of the company's US$10.6 billion 2005 loss. GM says it expects those expenses to fall by 7.4 per cent to US$5 billion this year after unions agreed to retiree health-care cuts and GM imposed reductions on salaried workers.

The company will close 12 North American plants by 2008 as part of its strategy to restore profitability. It said on Monday that 35,000 US union workers had agreed to take buyouts or retirement incentives to leave.

That will save about US$2 billion annually in cash, according to JP Morgan analyst Himanshu Patel - or about 10 times what the company spends on cholesterol reducers.

Past education campaigns have succeeded in getting employees to switch to generics. About 98 per cent of GM employees take a generic drug when one is available, saving as much as 60 per cent on each prescription.

The company gives employees and retirees a free 30-day prescription when they use the generic equivalent or an alternative to a more expensive brand-name drug at the company's pharmacy.

- BLOOMBERG