Generic Drugs Could Have Saved $3B for Medicare Part D Program

Using generic drugs instead of their brand-name equivalents could have saved the Medicare Part D program approximately $3 billion in 2016 alone, according to new data from HHS.

A relatively small number of brand-name therapies is responsible for significant spending, HHS found.  Ninety percent of all prescriptions filled in the US are already for generic medications, but shifting the remaining ten percent of prescriptions away from pricey brand-name options could have reduced spending by a third.

“Price reductions associated with generic competition have generated significant savings for the Part D program and its beneficiaries,” HHS said. “However, incompletely aligned incentives for generic substitution leave significant savings uncaptured.”

In 2016, Part D dispensed 600 brand-name substances that cost beneficiaries and health plans $9 billion. Generic prescription drugs cost Part D stakeholders $34 billion. Total drug spending for both generics and brand-name prescriptions reached $43 billion before factoring in pharmacy rebates.

HHS calculated that if generic substitution worked program-wide, then Part D could potentially save $5.9 billion a year.

For example, HHS calculated that substituting Esomeprazole Magnesium for the brand-name drug Nexium would alone have saved Medicare $557 million. Substituting Rosuvastatin Calcium for the brand-name equivalent Crestor would have saved Medicare $226 million.

Brand-name drugs also drive up cost-sharing amounts for Part D beneficiaries.

Brand-name therapies cost beneficiaries $30.69 per prescription compared to $22.41 for their generic equivalents. In 2016, beneficiaries paid $1.1 billion in out-of-pocket costs of brand-name drugs, which was almost twice as much as out-of-pocket costs for generics.

HHS found that multiple-source drugs, or drugs that are marketed as both generic and brand-name substances, inflated cost-sharing totals.

“In 2016, multiple-source brand drug cost-sharing averaged $39.15, while generic cost-sharing for substitutable products was $17.04. Beneficiaries could have saved over $600 million in out-of-pocket payments had they been dispensed generic equivalent drugs,” the report stated.

Prescription drug spending has emerged as a hot-button issue for federal healthcare programs that want to reduce spending for the government and healthcare consumers alike.

HHS has issued new proposals to expand generic utilization as a way to reduce costs.

“The Department has several proposals to improve incentives to use generic drugs,” HHS said. “The proposals have included removing impediments to generic entry, and increasing generic substitution via cost-sharing incentives.”

CMS has advocated against the use of “gag clauses” in the Part D program, and developed drug pricing transparency tools, in order to help patients afford prescriptions. The agency also implemented a final rule in April of 2018 to extend the availability of cheaper biosimilars and generic drugs for beneficiaries.

The generic drug market can help all healthcare payers provide affordable prescription benefits since there are many available generic drugs that provide clinically-equivalent treatments as their brand-name counterparts.