AEI - Get with generic substitution guys!!

Brand drugs are generally significantly more expensive than therapeutically equivalent generic products. This report analyzes a large subset of 2009 Medicaid drug data from the Medicaid Drug Rebate Program and identifies multi-source drugs (i.e., products for which there are brand and generic versions) for which there are significant sales of more costly brand products. The results show that states' Medicaid programs engage in a large amount of unnecessary and wasteful drug spending by reimbursing pharmacies for relatively costly brand products when identical generic products are available.

Generic substitution refers to the percentage of total prescriptions for a particular chemical compound, strength, and dosage form filled by a generic. Because there is usually a large price differential between brand and generic drugs, a high generic substitution rate ensures cost-effectiveness in the Medicaid drug program without engaging in policies that affect clinical decisions.

This report assesses wasteful spending in Medicaid by examining specific brand drugs and quantifying the potential savings that could have been achieved had these drugs been replaced with lower-cost, therapeutically equivalent generics that were available but not used. The report bases its conclusions on an analysis of Medicaid drug spending from data made available by the Centers for Medicare & Medicaid Services.

The analysis, which examines a subset of approximately two-thirds of total Medicaid drug spending in 2009, identifies an estimated $271 million of wasteful spending as a result of underutilization of available generics. Had generics been fully substituted for the brands identified, Medicaid's total spending on the identified drugs could have been $1.49 billion instead of $1.76 billion.

Given rising pressures on states' fiscal budgets, these findings, considered in conjunction with the conclusions of previous studies, indicate that continued wasteful spending in Medicaid is a problem requiring the prompt attention of policymakers.

Key Findings

• In total, Medicaid spent $21.8 billion on drugs in 2009. Following a review of approximately two-thirds ($14 billion) of 2009 Medicaid drug spending, which included single-source and multi-source products, this report identified twenty brand drugs for which a therapeutically equivalent generic was available, but on which Medicaid overspent in 2009 by not fully utilizing the available generics.

• Within this subsample, Medicaid’s overspending on prescription drugs is estimated to be $271 million. This waste is based on only twenty drug compounds, but there are 139 unique NDCs within those compounds. While the analysis examined two-thirds of total Medicaid drug spending ($14 billion of the total $21.8 billion), total spending on the twenty multi-source drugs was approximately $1.76 billion. Thus, for the identified products, Medicaid spent 15 percent more than it would have had generics been fully utilized ($1.76 billion versus $1.49 billion).

• Among the twenty drugs studied, Medicaid wasted an average of $96 per prescription. For half of the drugs, Medicaid averaged over $100 in waste per prescription.

• Most of the waste (94 percent) was concentrated in twelve of the twenty identified chemical compounds. Total waste for these drugs was roughly $256 million.

• The majority of the waste identified relates to drugs that recently experienced a generic launch. Nearly three-quarters of the waste (73 percent) was tied to generic products that launched in 2008 or 2009.

• The top underutilized generics in terms of wasteful spending were lamotrigine (brand Lamictal®) and risperidone (brand Risperdal®), with overspending on the corresponding brand drugs totaling approximately $51 million and $45 million, respectively.

• The average rate of generic substitution for the twenty products was 87 percent over the four quarters of 2009, but nine of the twenty drugs had substitution rates lower than 80 percent.

 

The full text of this working paper is available here as an Adobe Acrobat PDF.

Alex Brill is a research fellow at AEI.

via aei.org

Posted via email from Jack's posterous