Generics more expensive than branded drugs on Part D, study says

A document that reads 'Medicare Part D'
More discounts for brand-name drugs offered in Part D's "doughnut hole" could inadvertently stymie generic competition, a new Health Affairs study says. (Getty/designer491)

Some seniors must pay up to $1,000 more for certain generic drugs compared to the brand-name version in Medicare Part D, according to a new study.

The study, published in the journal Health Affairs on Monday, said that brand-name manufacturer discounts in Medicare Part D have created a “perverse incentive” for seniors to select a branded drug instead of a generic. This shift away from generics could discourage manufacturers from pursuing generic competition, the study added.

The 2018 Bipartisan Budget Act required brand-name companies to increase their mandatory discounts from 50% to 70% for Part D drugs that are offered in the gap between the initial coverage phase and the catastrophic coverage phase, typically known as the “doughnut hole.”

The law also required that a biosimilar couldn’t be more expensive than the brand-name biologic it resembles. However, it didn’t extend the same requirement to nonbiosimilar generic drugs.

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The authors calculated the 2019 costs of nine brand-name products with a generic or biosimilar approved in 2015 to 2016. The study then estimated the discount that a brand manufacturer would offer to affected Part D seniors.

Generics for high-cost specialty drugs that treat chronic conditions such as cancer are the most likely to be more expensive than the brand, the study found. For instance, this year a generic of multiple sclerosis drug Copaxone cost $1,072 more than the brand on Part D.

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The authors were worried that the lower price for branded products creates a greater incentive for a senior to use them over a generic, causing a ripple effect that could lead drug companies to shy away from making generics.

“Given the lack of marketing and promotional spending on generic and biosimilar products and the lower levels of competition generally observed for products used for rare diseases, this is an important risk,” the study said.

Another concern was that patients who live in states with generic substitution laws, which require a generic to be dispensed by the pharmacist, will not be able to take advantage of the cost savings from a cheaper branded drug.

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Spending in the catastrophic drug phase is a major driver of Medicare spending overall. Seniors in the phase accounted for 60% of Part D spending in 2017, according to congressional testimony from the Medicare Payment Advisory Commission.

The commission recommended to Congress in April that Part D plans need stronger incentives to negotiate drug prices and lower costs.