Healthcare plans that encourage the use of generic drugs by lowering or eliminating copayments may save Medicare billions of dollars, according to a study published in the October issue of Health Affairs. Researchers estimated that every 10 percent increase in the use of a generic statin would save Medicare approximately $1 billion annually.

Switching patients from name-brand medications to less expensive generics lowers total drug spending, wrote John F. Hoadley, PhD, a health policy analyst and research professor at Georgetown University Health Policy Institute in Washington, D.C., and colleagues. They cited the Congressional Budget Office, which calculated that the use of generic drugs in Medicare Part D resulted in $33 billion in savings in 2007.

Improving drug adherence also potentially provides cost savings, they noted. “Lower patient copayments, whether linked to the use of generics or not, are also associated with higher adherence,” Hoadley and colleagues wrote. “Although greater adherence can increase drug costs, it can also lead to medical savings through reductions in the number of hospitalizations and use of emergency departments.”

Insurers have designed many strategies to encourage beneficiaries to use generics, and in the context of Medicare Part D, private health plans administering the Medicare benefit have instituted a variety of benefit designs and formularies, Hoadley and colleagues wrote. For their study, they sought to examine whether factors such as cost sharing influence generic use by Medicare Part D enrollees. They selected statins for the study because 44 percent of beneficiaries who get coverage through Medicare Part D plans have been prescribed statins.

For their analysis, they looked at Medicare Part D insurance claims for prescription drugs in 2008 and selected 710,632 Medicare Part D enrollees who were prescribed a statin during the year. Beneficiaries were pulled from a sampling from the Centers for Medicare & Medicaid Services. They also identified 15 statins: 12 brand-name products that included Lipitor (Pfizer) and Crestor (AstraZeneca) and three generics.

They found that the average copay for a generic statin was $5.15 while copays of brand-name drugs ranged from $25 to $90. Based on logistic regression, they determined that charging copays for generic drugs reduced the likelihood of a patient using a generic by 13 percent. Charging higher copays on brand-name drugs had a statistically significant but small effect on increasing drug use. Requiring preauthorization for a brand-name statin and requiring step therapy—a strategy that makes beneficiaries first try a low-cost statin before the plan would cover a higher cost alternative—both increased the likelihood of the patient choosing a generic statin. 

As a final step, they ran five different drug plans through a model to show the overall effect of copays on rates of drug use. They found the predicted rate of use of a generic statin ranged from 51 percent for a plan with $7 copays for generics and $24 copays for Lipitor and Crestor to 88 percent for a plan with no copay for generics and copays of $115 for Lipitor and $99 for Crestor.

“Having a low generic copay is the strongest factor influencing the use of generic statins, and having a copay of zero has an especially large effect,” they wrote. “Copays for Lipitor and Crestor and the use of prior authorization and step therapy are also strong factors.”

Based on their results, Hoadley et al concluded that increasing the use of generics in Medicare Part D would save the government, beneficiaries and the drug plans. They estimated that every 10 percent increase in generic use would reduce costs by approximately $1 billion a year.  

Based on their findings, they concluded that generic statins may not be generalizable to other drug classes such as medications used for psychiatric therapies but that they may be applicable for drugs to treat hypertension. They recommended that health plans consider eliminating copays for generics. They also suggested Medicare offer incentives to health plans that increase the use of generics.