NCPA - National Center for Policy Analysis

Using Generic Drugs Could Save Medicaid Millions

March 31, 2011

Analyses of a large subset of 2009 Medicaid drug data from the Medicaid drug program identifies 20 popular multisource drugs (that is, prescription drugs for which both brand and generic versions are available) for which there are significant sales of the more costly product.  The findings are consistent with the widely held opinion that brand drugs are more expensive than therapeutically equivalent generic products, says Alex Brill, a research fellow at American Enterprise Institute.

The results show that:

  • In 2009, states' Medicaid programs engaged in a large amount of unnecessary drug spending by reimbursing pharmacies for relatively costly brand products when alternative products with identical active ingredients were available at a lower cost.
  • Specifically, the analysis identifies $329 million of overspending as a result of underutilization of the less costly (generic) and overutilization of the more costly (brand) versions of these multi-source products.
  • Because Medicaid is a joint federal-state program, savings from addressing this problem would accrue to both states and the federal government, although the federal share of total Medicaid spending is generally about 57 percent.

The approach of a significant "patent cliff," when many blockbuster brand drugs will begin to face generic competition upon losing patent protection in 2011 and 2012, makes the likely future overspending in this program even greater if new policies are not promptly adopted.  Given rising pressures on states' fiscal budgets, these findings, considered in conjunction with the conclusions of previous studies, indicate that continued wasteful spending in the Medicaid drug program is a problem requiring policymakers' prompt attention, says Brill.

Source: Alex Brill, "Overspending on Multi-Source Drugs in Medicaid," American Enterprise Institute, March 28, 2011.

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