Sending The Wrong Price Signal: Why Do Some Brand-Name Drugs Cost Medicare Beneficiaries Less Than Generics?

Abstract

The current Medicare Part D benefit may require greater out-of-pocket spending for beneficiaries filling prescriptions for higher-price generic drugs, compared to those filling brand-name counterparts. This can occur among patients who reach the catastrophic coverage phase under the Part D benefit, when differences between the prices for generic and brand-name drugs are not large. This scenario may be common with specialty drugs (typically high-price products used to treat rare or complex conditions), when the number of generic manufacturers or clinical alternatives are limited. In this study we demonstrated that patients would pay more out of pocket for generic medications than for brand-name drugs in these cases, driven by manufacturer discounts provided in the Medicare Part D coverage gap. Overpayments for specialty generic drugs relative to brand-name drugs ranged from $869 to $1,072 in 2019, despite lower point-of-sale prices for these drugs. Policy makers should consider modifying the Part D benefit to increase incentives for generic drug use.