NCPA - National Center for Policy Analysis


June 27, 2005

Broad substitution of generic drugs could result in substantial absolute savings, says the Annals of Internal Medicine (AIM).

By offering the choice of multisource drugs, which are drugs that are available in a brand name and generic formulations, prescription drug expenditures could be reduced. In a recent AIM survey on drug spending by adults who were a part of the Medical Expenditure Panel Survey Household Component from 1997 to 2000, prescription drug spending was found to be increasing by 10 percent a year.


  • Multisource products represented 56 percent of all outpatient drugs, accounting for 41 percent of total outpatient drug expenditures.
  • Of these multisource drugs, 61 percent were dispensed as a generic.
  • If a generic had been substituted for all corresponding brand-name outpatient drugs in 2000, the median annual savings in drug expenditures per person would have been $45.89 for adults 65 or younger and $78.05 for adults who were at least 65 years old.
  • In these age groups, the national savings would have been $5.9 billion and $2.9 billion respectively, representing approximately 11 percent of drug expenditures.

Even though generic substitution only modestly reduces national drug expenditures, says AIM, the absolute savings will be significant and broad dispensing would achieve savings without compromising safety since generic drugs are believed to provide the same therapeutic effect as brand-name drugs.

Overall, greater use of generic medications could results in important health care savings in the United States while maintaining quality of care, concludes AIM.

Source: Jennifer S. Haas et al., "Potential Savings from Substituting Generic Drugs for Brand-Name Drugs: Medical Expenditure Panel Survey, 1997-2000," Annals of Internal Medicine, June 7, 2005.

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