According to Stat, the Association for Accessible Medicines–the trade association for generic drugmakers–issued a report revealing that less than half of new generic drugs are available to patients with Medicare Part D drug coverage. These drugs cost less than their brand-name drug equivalents and would save patients and taxpayers billions of dollars a year. What’s going on?
Researchers studied the fate of the 115 newly FDA-approved generic drugs between 2016 and 2018. They found that in the first year after a new generic is approved, no more than one in four Medicare Part D plans, and as few as one in ten Part D plans, include the drug on their formularies, their list of covered drugs. In the second year, no more than one in three Medicare Part D plans include the drug on their formularies. It generally takes close to three years before a new generic drug makes it onto half or two-thirds of Medicare Part D formularies.
Even after a new generic drug has been on the market for three years, about four in ten Medicare Part D plans do not include it on their formularies.
The report also indicates that Medicare Part D insurers that do cover these newly approved generic drugs tend to charge copays for them that are equivalent to brand-name drug copays. In fairness, some newly approved generic drugs cost almost as much as their brand-name equivalents. But, as a general rule, generic drugs should have lower copays than brand-name drugs.
In their second year on the market, generic drug prices tend to fall by around 45 percent. Still, only a small percentage of Medicare Part D insurers–nine to 13 percent more–included new generic drugs on their list of covered drugs.
The Association for Accessible Medicines believes that the brand-name drugmakers are providing financial incentives to Pharmacy Benefit Managers (PBMs)–the middlemen who decide which drugs to put on a formulary–to exclude new generics from the Part D plan formulary. The brand-name drugmakers can legally do so, it appears. To increase their market share, they simply offer “rebates” or kickbacks to the PBMs if they do not cover the competitor generic drug.
The Association for Accessible Medicines also finds fault with the structure of the Medicare Part D drug benefit. At the point at which people fall into the coverage gap or “donut hole,” brand-name drugmakers must offer a 70 percent discount on their drugs. But, the discount amount is included as part of the out-of-pocket costs people with Medicare must spend before Medicare covers 95 percent of costs. At that point, Part D plans have less liability for their drug costs. Consequently, Part D plans have a financial incentive to get people out of the donut hole by having them use brand-name drugs.
What’s the solution? Congress should prohibit brand-name drug makers from providing financial incentives to PBMs and Part D plans to exclude coverage of generic drugs. Part D plans should be required to cover these generic drugs at generic drug copay levels. AAM claims people with Medicare would save $4 billion a year from this fix; taxpayers would also save.
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