Some generic drugs may actually cost Medicare Part D beneficiaries more out-of-pocket than brand-name drugs because brand-name manufacturers can offer discounts that generic drug makers cannot pay.
Under the Medicare Part D benefit, patients may actually spend more out of pocket (OOP) on generic drugs compared with brand-name drugs, according to a new study published in Health Affairs. This happens because of manufacturer discounts on brand-name drugs in the Part D coverage gap, researchers found.
They used data from the Medicare Formulary Files for the first quarter of 2018 and compared prices, formulary coverage, and projected annual OOP spending for Part D and stand-alone enrollees.
“For Medicare beneficiaries needing small-molecule specialty drugs or biologics, price differences between generics or biosimilars and their brand-name counterparts may be relatively modest, compared with traditional generic drugs,” the authors explained.
Since 2012, patients using brand-name drugs have reached the coverage gap with lower OOP spending because they were able to receive a manufacturer discount that counts toward OOP spending. The Bipartisan Budget Act (BBA) attempted to fix this, but while it modified the Part D benefit so patients did not pay more for biosimilars than for brand-name drugs, the law did not apply to generic drugs.
They used a sample of 9 brand-name drugs that have generics or biosimilars:
The authors found that before the BBA, biosimilars and specialty generics required higher OOP spending relative to brand-name drugs. The difference ranged from $591 for generic imatinib instead of brand-name Gleevec to $1949 for biosimilar Zarxio instead of brand-name Neupogen. Patients on biosimilar Inflectra were spending $4097 a year OOP compared with $2858 OOP for brand-name Remicade.
However, after the BBA, OOP spending for patients on biosimilars is decreasing, the authors found. Patients using Inflectra will save $1573 in OOP spending compared with how much they spent before the BBA. At the same time, OOP spending for generics is increasing.
“This is happening because branded drug manufacturers now pay a discount in the donut hole, which gets counted as out-of-pocket spending,” lead author Stacie Dusetzina, PhD, associate professor of Health Policy and Ingram Associate Professor of Cancer Research at Vanderbilt University Medical Center, said in a statement. “This helps patients reach catastrophic coverage faster, where they pay 5% of the drug’s price instead of 25%. Generic drug makers do not pay these same discounts, so patients have to spend more of their own money to make it to the catastrophic phase of the benefit.”
The authors noted several concerns: Incentives for the use of brand-name drugs may decrease market share for generics and discourage new generic entrants; depending on plan design, patients may not be able to switch between brand-name and generic drugs to save money; and patients may have trouble switching to a brand-name drug, even if they have lower OOP costs, because of generic substitution laws.
They suggest eliminating manufacturer discounts from OOP spending calculations to reduce barriers for generic drug use or extending the discounts for brand-name drugs and biosimilars under the Part D benefit to generics as well.
“The Part D benefit needs a redesign so that it works for people needing expensive drugs,” Dusetzina said. “I hope Congress will take this opportunity to make changes to Part D, including making sure that generic drug users aren’t overpaying for these drugs.”
Dusetzina SB, Jazowski S, Cole A, Nguyen J. Sending the wrong price signal: why do some brand-name drugs cost Medicare beneficiaries less than generics? Health Aff (Millwood). 2019;38(7):1188-1194. doi: 10.1377/hlthaff.2018.05476.