Medicare spent $1.7 billion on brand-name drugs though generics were available

In yet another example of private health insurers driving up Medicare spending, a new report in JAMA shows that in 2017 Medicare Part D prescription drug insurers spent nearly $1.7 billion on brand-name drugs even though generic alternatives were available. The cost to people with Medicare was millions of dollars more out of pocket.

The JAMA study found that Medicare would have saved almost $1 billion if Part D insurers had simply paid for generics rather than brand-name medicines prescribed. To be clear, it is sometimes not advised for people with certain conditions to switch from a brand-name drug to a generic version of the drug. Moreover, not everyone reacts well to generic substitutes. But, in most cases, generic drugs have the same treatment effect as brand-name drugs.

More specifically, Medicare would have saved $977 million in 2017 if doctors had prescribed generics instead of all of the brand-name medicines they prescribed. And if Medicare patients had sought generics instead of brand-name drugs, Medicare Part D would have saved another $673 million. In total, people with Medicare spent an additional $270 million out of pocket on brand-name drugs that they could have saved had they taken the generic substitutes.

The study authors looked at Medicare Part D data for 2017, covering 169 million prescriptions. They found that three in ten brand-name drug prescriptions filled were at the request of doctors or patients. Of note, every state in the nation has a law in place encouraging pharmacies to dispense generic drugs.

According to one of the study’s authors, physicians can prescribe brand-name drugs whenever they please, even when generic substitutes are available. They are not penalized in any way for so doing. In fact, many drug companies reward physicians in a variety of ways when they prescribe brand-name drugs.

In addition, pharmaceutical companies can and do handsomely reward the middlemen who distribute brand-name drugs–Pharmacy Benefit Managers–and put them on insurance company formularies. Insurers also often benefit. As a result, insurers are inclined to cover brand-name drugs, sometimes even more so than generic substitutes.