A new study from the Congressional Budget Office (CBO) underlines the dramatic cost savings afforded by the use of generic drugs in Medicare.


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Generic drug impact on health care costs charted by CBO

September 27th, 2010

WASHINGTON – A new study from the Congressional Budget Office (CBO) underlines the dramatic cost savings afforded by the use of generic drugs in Medicare.

According to the CBO, in 2007 generic drug use saved seniors and the federal government $33 billion.

The Generic Pharmaceutical Association (GPhA) hailed the report. “Once again it is clear that using generics can stretch Medicare dollars, freeing up money for other critical health care services,” GPhA said in a statement. “The CBO report concluded that had generic drugs not been used, Medicare would have had to spend an additional $93 billion in 2007, money that would have had to come from higher Medicare premiums and taxes.”

The CBO study is based on analysis of data on Medicare Part D prescription drug insurance claims from the Centers for Medicare and Medicaid Services (CMS). The purpose was to assess how successful private plans have been in encouraging the use of generics and how much additional savings might be derived from their increased use.

The report found that in 2007 total payments to plans and pharmacies under the Part D program and its enrollees totaled approximately $60 billion. About 1 billion prescriptions were filled, 65% of which were filled with generics, 5% with branded drugs for which generic versions are available (multiple-source branded drugs), and 30% of which were filled with brand name drugs with no generic equivalent (single-source branded drugs).

Although generics constituted 65% of scripts dispensed, they accounted for only 25% of total prescription drug costs under Part D in 2007. By contrast, single-source branded drugs, which accounted for only 30% of the scripts issued, generated about 68% of total drug costs.

The strong financial incentives for using generics under the Part D program are reflected in the fact that more than 90% of prescriptions written for multiple-source drugs were filled with generic versions.

The total number of Part D scripts filled with generics came to about 600 million, and a multiple-source branded drug was available for about 500 million of those. Of those 500 million scripts, the average price for the branded option was $89, whereas the average price of the generic counterpart was $23.

The differential between those average prices, $66, multiplied by the 500 million prescriptions yields the $33 billion savings derived by the CBO.

The CBO report identified 15 therapeutic classes of medication and calculated the potential savings from therapeutic substitution for seven of those classes, based on the availability of at least one single-source branded drug and one generic version of a therapeutically similar but different drug. Those seven classes accounted for about 180 million prescriptions in 2007, representing approximately $10 billion in prescription drug costs.

Within that group, about 66% of the scripts were dispensed with generics, accounting for 36% of the drug costs in those classes. Single-source brand name drugs were issued for about 30% of the scripts but claimed 59% of drug costs.

Within those seven classes, the CBO calculated that switching a prescription in 2007 from a single-source branded drug to a generic in the same class would have reduced the cost of each script by about 70% on average.

Looking ahead, the report concludes that using generic drugs in the future can further reduce spending under the Medicare Part D program. The potential for actual savings will vary, however, depending on various market factors.

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