NCPA - National Center for Policy Analysis

Encouraging the Use of Generic Medication Could Save Medicare Billions

October 22, 2012

Many private health plans that administer Medicare drug benefits are taking advantage of tools to encourage beneficiaries to use generic drugs as a means of lowering total drug spending, say researchers in the journal Health Affairs.

  • Eighty percent of prescriptions dispensed last year were generics, compared to 63 percent in 2006.
  • The use of generic drugs in Medicare Part D saved $33 billion in 2007.
  • Fourteen states required pharmacies to dispense the generic version of a drug whenever it is available.

There are many benefits derived from encouraging the use of generic drugs aside from the cost savings.

  • For example, the use of generic drugs encourages consumers to fully adhere to their medication.
  • While greater adherence may increase overall drug costs, it leads to long run medical savings because of the reduction in hospitalizations and emergency room use.

Many insurers and state governments are pursuing strategies to encourage people to not only switch to a generic version of a drug, but also from patented drugs to generic alternatives in the same drug class. However, studies have shown that despite the large difference in copays, the discouragement of brand-name drugs does not translate to an increase in generic use.

As a result, one health plan strategy relies on requiring the use of low-cost medication before one buys the brand-name drugs. This is done by requiring prior authorization for the use of the brand-name drug by the consumer.

In a study that assessed what influenced Medicare beneficiaries to choose a generic drug to treat high cholesterol, it was low copayment that attracted consumers to the generic drugs. Other tools that had some effect include higher copays for brand-name drugs and "step therapy," which is a health plan that require enrollees to try a low-cost medication before it will cover the costlier alternative.

Overall, for every 10 percent increase in the use of generic drugs, there is an estimated $1 billion in annual savings for Medicare.

Source: John F. Hoadley et al., "In Medicare Part D Plans, Low or Zero Copays and Other Features to Encourage the Use of Generic Statins Work, Could Save Billions," Health Affairs, vol. 81 no.10, October 2012.


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