Out-of-Pocket Healthcare Spending for Generics Rose from 2011-2019

While negotiated drug prices dropped, out-of-pocket healthcare spending on generic prescription drugs increased for patients as generics moved from Tier 1 to tiers typically dedicated to brand drugs, according to a study from Avalere.

The researchers used Medicare Part D data from CMS for both Medicare Advantage prescription drug plans and standalone Medicare Part D plans as well as the CMS Medicare Part D Drug Dashboard. The drugs that the study analyzed were on the market in 2011, 2015, and 2019 to capture change over time.

“Generally, generic drugs placed on higher formulary tiers have higher cost-sharing requirements than those placed on lower formulary tiers, suggesting that the trends in tier placement could result in higher patient out-of-pocket (OOP) spending for some generic prescription drugs,” the researchers noted.

Over time, the share of Tier 1 generics offered dropped. In 2011, more than 70 percent of generic drugs on the Part D formulary tier were Tier 1, typically preferred generic drugs. By 2019, however, preferred generic drugs made up less than a fifth of the generic drug distribution, with the sharpest decline between 2011 and 2015.

Instead, the share of generic drugs in Tiers 3 and 4 grew. In 2011, less than 10 percent of generics were categorized as Tier 3 or Tier 4. However, this share spiked by 2015, rising to nearly 20 percent for Tier 3 and the share of generics offered as Tier 4 drugs rose to more than 10 percent. In 2019, these numbers increased again, with the share of generics offered on each tier exceeding 20 percent.

These shifts had cost implications for patients. Patients’ total spending on generics rose 135 percent from 2011 to 2019, from $8.5 billion to $20 billion. Some of that shift might be due to new generic entrants and Medicare Part D enrollment increases, the researchers acknowledged.

While out-of-pocket costs increased for patients, the negotiated drug prices dropped. From 2011 to 2015, the cost bumped by over eight percent and in the next four years it dropped by almost eight percent, resulting in a slight decrease in negotiated prices overall.

“Overall, the analysis found that generics in this cohort were placed on higher tiers and that patient OOP spending increased over the time horizons assessed. There were moderate increases in volume over the assessed time period, and average prices increased from 2011 to 2015 and then decreased from 2015 to 2019,” the researchers concluded.

Separate research has indicated that US drug pricing exceeded international counterparts’ drug pricing in 2018.

Given these trends, it may not be surprising that most of the premium dollar goes toward covering prescription drugs, according to research from AHIP.

Around 70 percent of Americans indicated that, given a choice between lower premiums and lower prescription drug spending, they would prefer to have lower prescription drug spending, demonstrating just how influential these costs can be.