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C h a n g e s i n H e a l t h Ca r e F i n a n c i n g & O r g a n i z a t i o n ( H C F O ) key findings
Encouraging Generic Use Can Yield Significant Savings
Policymakers and health plans have explored Rising prescription drug costs continue to several strategies to encourage beneficiaries be an issue of importance to patients, health insurers, and the federal government. One drugs. Some states require pharmacies to dis- popular cost containment solution is encour- pense generic drugs for the drug prescribed aging the use of generic drugs over brand- if available, and insurers have instituted name drugs. In general, utilization of generic • Prior authorization and step therapy medication is increasing in the United States. generic drugs and employed a number of uti- In 2011, 80 percent of the drugs dispensed lization management tools. These measures in the United States were generic, compared include requiring prior authorization for brand-name drugs or “step therapy,” which • Greater use of generic statins should prescription drugs come off patent, more requires a beneficiary to first try a lower-cost generic options will become available. In drug before a higher cost alternative. There addition to being lower cost, generic drug is considerable variation in benefit design utilization is associated with increased medi- among plans, especially in Medicare Part D.
cation adherence, which can lead to fewer hospitalizations and emergency department In 2010, Jack Hoadley, Ph.D., collaborated with colleagues at Georgetown University, (CBO) estimated that substituting generic Social & Scientific Systems, and NORC for brand-name drugs was responsible for $33 billion in savings in 2007 for Medicare funded study that examined the extent of Part D, the Medicare prescription drug ben- generic drug use in Medicare’s stand-alone efit. The CBO also estimated a potential $4 drug plans for specific classes of drugs. They Changes in Health Care Financing and Organization is a billion in additional savings from increased analyzed the impact of plan-level benefit national program of the Robert Wood Johnson Foundation generic substitution in seven drug classes.
design, formulary design, and overall pro- findings brief — Changes in Health Care Financing & Organization (HCFO)
gram design on use of generics. Their find- well as two imaginary variables to capture ings on statins used to treat high choles- plan prior authorization and step-therapy sample drug plans, based loosely on actual terol were published in the October 2012 beneficiary demographics including race, included different combinations of copay- ments and plan design characteristics. In According to Dr. Hoadley, “The goal of this enrollment, and plan characteristics includ- general, the highest predicted rate of gener- project was to understand which approaches ic use was found in the plan with no copay used by Medicare drug plans encourage con- for generic drugs and utilization manage- sumers to use generic drugs, when appropri- 25 percent coinsurance for all drugs. The ment requirements. Conversely, the lowest ate, thus saving money both for themselves researchers also controlled for individual in the plan with generic copays, relatively low brand-name copays, and no utilization Sample and Methods
Dr. Hoadley and colleagues used Medicare Part D drug events (insurance claims for Limitations
There are several potential limitations to They excluded beneficiaries with the fol- looked at the impact on statins, and may $33.57 and $46.90 for several brand-name not be generalizable to other drug classes. eficiaries whose incomes were high enough • Eligible for Medicare because of end- that they did not qualify for the program’s step-therapy requirement for at least one authorization requirement, 9.8 percent had • Enrolled in plans other than stand-alone coinsurance for all drugs, and the majority lacked coverage for the doughnut hole. In • Younger than 65 and enrolled based on thirds of the sample was female, half were formulary drugs without a plan exception urban residents, and almost all were white. or generics purchased at a discount without In addition to statin drugs, the average using their plan benefit. Depending on the beneficiary used approximately five other individual plan’s treatment of brand-name off-formulary drugs or discounted generics, thirds) of those other drugs were generics. the use of generics could be either over-stated or understated in the results. Those exclusion criteria created a study sample of 710,632 beneficiaries who took factors are related to rates of generic statin Additionally, some beneficiaries may have statins. The set of statins analyzed included use. Charging any copay for a generic drug selected a drug plan specifically because of 15 drugs (12 brand-name and three generic was associated with a 13 percent decreased probability of using a generic drug as com- are currently prescribed. This could result pared with no copay. In addition, charging results. Alternatively, beneficiaries could whether a beneficiary’s last statin prescrip- a modest, statistically significant impact be using Medicare’s online Plan Finder, tion of the year was a generic drug, the on the probability of using a generic drug. selecting a plan based on all medications researchers used logistic regressions to The largest effect was seen with the brand- determine the association between various name drug Lipitor, which is the most used Health plans may use incentives (i.e., free and step-therapy requirements applied to samples or financial incentives) and infor- mation (i.e., patient or physician mailings) with an increased probability of using a measured copayment levels set by the plan to prescribe and dispense generic drugs. for different brand and generic drugs, as findings brief — Changes in Health Care Financing & Organization (HCFO)
Information on these factors was not avail- able to the researchers, and therefore, their importance of considering the differences impact of a beneficiary’s clinical history, generic substitution in similar drug classes financial resources, or level of education.
(e.g., drugs for hypertension, gastrointes- clinical option, even when a generic option tinal conditions, and osteoporosis) could is available. Policies should not limit access Finally, therapeutic substitution (switching from an on-patent drug to a similar off-patent Budget Office analysis is consistent with drug with a generic option) requires a new the study’s findings and underscores the Conclusion
prescription. If some patients fail to discuss The use of generic drugs creates signifi- options with their physician before receiving cant potential savings for Medicare, health a prescription, it may limit the impact of cost plans, and individual beneficiaries. Using that allows them the flexibility to structure effective formulary and benefit designs. generic drugs and utilization management Discussion and Policy
tools, health plans could increase utiliza- Implications
tion and experience billions in savings for The results demonstrate that health plan statins. Further research into this impact benefit design has a strong impact on the plans could target certain drug classes for in other drug classes could uncover even use of generic drugs, especially low copays for generic drugs (the largest effect seen system that includes two generic tiers and with no copay), copays for popular brand- For More Information
use of prior authorization and step therapy. The more aggressive the plan measures, the greater the impact on generic drug use.
About the Author
Christina Zimmerman is a research assis-
Increasing generic drug use may result in significant cost savings for the Medicare in exchange for directing plan enrollees to a 10 percent increase in generic statin use (in place of brand-name use) would result the researchers suggest that the potential Endnotes
in $1 billion in savings (shared by patients, savings to health plans may be greater for 1 For complete findings see J Hoadley, K Merrell, E Hargrave, and L Summer. In Medicare Part D Plans, Low or Zero Copays And Other Features Potential savings will continue to grow as To Encourage The Use of Generic Statins Work, Could Save Billions. Health Affairs. October 2012: 31 (10): pp. 2266-2275.


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