Medicare Part D Incurs Substantial Savings with Generics, CBO Says

Dispensing generic drugs rather than their brand-name counterparts reduced prescription drug costs in the Medicare Part D by $33 billion in one year, according to a study by the Congressional Budget Office (CBO).

In 2007, the total payments to plans and pharmacies from the Part D program and its enrollees were about $60 billion, CBO said. The total number of prescriptions filled under Part D was about 1 billion—of which 65% were filled with generic drugs, 5% were filled with multiple-source brand-name drugs (which had generic versions), and 30% were filled with single-source brand-name drugs (for which no chemically equivalent generic versions were available).

Even though a majority of the prescriptions were filled with generic drugs, their lower prices meant that those prescriptions accounted for only 25% of total prescription drug costs. If no generics had been available, the total payments to plans and pharmacies from the Part D program and its enrollees would have been about $93 billion—or 55% higher.

The potential also exists to save even more through generics, according to CBO. Single-source brand-name drugs accounted for 68% of total prescription drug costs under Part D in 2007—even though the drugs accounted for only about 30% of actual prescriptions. Plans could have achieved some savings from that group of drugs by encouraging enrollees to switch to the generic forms of different drugs, the report said.

Over the next several years, entities that pay for prescription drugs will benefit from a wave of brand-name drugs in high-priced therapeutic classes losing patent protection—or other periods of exclusivity—that will allow generic drugs to enter those markets for the first time, CBO said.

If the current rate of generic substitution is maintained, first-time generic entry occurring through 2012 will generate about $14 billion in additional savings from generic substitution—in addition to the $33 billion in savings, it added.

The CBO report did note that spending under Part D on the category of drugs called biologics could to increase rapidly in the future. However, most biologics, which can run reach prices of tens of thousands of dollars per patient each year, are more likely to be covered under Part B of Medicare because they are injected or infused directly into the patient. Biologics accounted for only about 6% of total prescription drug costs under Part D in 2007.