Medicaid Skips Generic Drugs, Overspends by Millions

State Medicaid programs spent at least $329 million more in 2009 on 20 popular brand-name drugs than they would have if they'd used lower-cost generic equivalents, according to a study from the American Enterprise Institute.

The study – Overspending on Multi-source Drugs in Medicaid  -- also projects that as much as $433 million in potential Medicaid savings could be lost in the two years when 10 "blockbuster brand drugs" lose their patent protections, unless states and the federal government press for the use of generic equivalents. 

The study from the conservative think tank examined Medicaid spending in 45 states for 20 popular prescription drugs in 2009 and found that the federal-state program "wasted" an average of $95 per prescription by failing to use therapeutically equivalent generics. That amounted to about $1.5 billion in total costs, about 22% higher than the cost of generic equivalents. The federal share of total Medicaid spending is generally about 57%.

The study's author, Alex Brill, said states and the federal government need to take action now to encourage or mandate the use of generic drugs before the federal healthcare reforms expand the Medicaid rolls by 16 million by 2019. "The subsequent increase in the size of the Medicaid drug program will result in greater waste if new policies are not implemented," Brill said.

Most of the overspending (85%) was concentrated in eight brand name drugs, including: the antipsychotic Risperdal ($60 million); anticonvulsants Lamictal ($58 million), Depakote ($40 million), Keppra ($34.6 million), and Topamax ($29.1 million); antidepressant Wellbutrin ($23.5 million); analgesic Duragesic ($22.7 million); and antiemetic Zofran ($10.3 million.) Total "waste" for these drugs was roughly $279 million, the study said.

On the state level, the greatest unnecessary spending was in California ($102 million), Texas ($31 million), Georgia ($25 million), and Ohio ($21 million). Per Medicaid enrollee, however, the most wasteful states were Vermont and Iowa ($31 per enrollee in each state), Maine ($18 per enrollee), and New Hampshire ($17 per enrollee).

Brill cites research from the National Association of Chain Drug Stores that the average generic prescription price among private payers in 2009 was $39.73 while brand drugs averaged $155.45, a generic discount of nearly 75%. "Clearly, potential savings from using generic versions of brand drugs is significant in a program that spent $20 billion on prescription medications in 2009," Brill said.

Patent protections are expected to expire for at least 10 popular prescription drugs over the next two years, Brill said, including: Actos, Combivir, Concerta, Lexapro, Lipitor, Plavix, Seroquel, Singulair, Xopenex, and Zyprexa. "Assuming that substitution rates are either 70% or 80% and … that generics are half the price of brands, I estimate that Medicaid will waste an annual $289 million–$433 million on these 10 drugs in the four quarters beginning after the end of the first generics' 180-day exclusivity period," Brill said.  

More needs to be done to press for the use of generic alternatives, Brill said. Only 16 states require pharmacists to dispense the lowest-cost multi-source drugs to Medicaid patients. Forty-one states have generic substitution laws for Medicaid, when available, in their Medicaid programs, but many of those same states also have exceptions and carve outs. "One example in many states are 'dispense-as-written' exceptions, which allow physicians to override generic substitution when they deem a brand drug to be medically necessary," Brill said.

Other money-saving strategies that states could use include preferred drug lists, lower co-payments for Medicaid enrollees who use generic drugs, and monthly limits on the number of brand-name prescriptions an enrollee can fill. "To reduce or eliminate waste in Medicaid drug programs, policymakers will need to consider wider implementation of these policies or others like them," Brill said.