Swapping out high-cost generics may save patients almost 90%

Photo: Jeff Lagasse/Healthcare Finance News

Replacing high-cost generics with cheaper medications that have the same clinical benefit could have cut down spending and saved patients about 88%, according to Johns Hopkins research published in JAMA Network Open.

The use of generics is generally understood as a cost-saving practice, and insurers generally aim for high generic substitution rates as a cost containment measure. But not all generics necessarily represent the lowest cost option, researchers found.

Pharmacy benefit managers (PBMs), they said, have an incentive to place higher priced generic drugs on the formulary because these drugs allow PBMs to profit by creating a large difference between the price negotiated with pharmacies and the price paid by insurers – a practice known as spread pricing.

Most states have generic substitution laws, and they incentivize the substitution of a branded product for its generic. But when there are multiple generics available for the same drug, these laws don’t necessarily promote the use of the less expensive generic. And the highest cost generic may have a different strength, dosage form, or different active ingredient than a lower cost generic option. 

Substitutions between products of different active ingredients, different strengths or different dosage forms may not be performed by a pharmacy without a new prescription from a healthcare practitioner.

Although generics typically account for a low percentage of prescription drug spending, substitution of high cost generics by lower cost options could well represent an easy-to-implement savings opportunity, according to Johns Hopkins. This is especially important for state payers, who face limited budgets and have ever-increasing costs from branded products and new technologies.

WHAT’S THE IMPACT

The study focused primarily on Colorado, which has been attempting to lower drug spending for several years. Researchers examined the price differentials and savings potential between high cost generics and therapeutic alternatives of the same clinical value and lower cost among the top 1,000 generics in Colorado’s all-payer claims database (CO-APCD). The CO-APCD gathers health insurance claims information for commercial health insurance plans, Medicare and Medicaid, and represents the majority of covered lives in the state.

Among those top 1,000 generics, there were 45 high cost generics that had lower cost generic therapeutic alternatives. Overall, high-cost generics were 15.6 times more expensive than their therapeutic alternatives. Colorado payers and patients spent a total of $7.5 million on these generics in 2019. If the lower-cost alternatives had been used instead, total spending would have been reduced by 88.3%, resulting in about $6.6 million savings.

About 62% of substitutions involved different dosage forms or different strengths of the same drug. Such substitutions provided, on average, discounts of 94.9% and 77.1% off the high cost generic’s price, respectively. These substitutions can’t be implemented by the pharmacy without a medical prescription, meaning they require a change in the plan’s formulary to prioritize lower cost but similarly effective therapeutic alternatives.

Multisource products can be substituted by the pharmacy without the need for a new prescription, and so they exert direct price competition on each other, researchers said. But drugs with a different strength, dosage form or active ingredient may not be substituted without a new prescription, and don’t pose direct price competition on one another. Generic manufacturers may choose to produce different forms of a drug to prevent substitution at the pharmacy, the study showed.

Importantly, Johns Hopkins found that high generic drug utilization is not a guarantee of lower spending. Plans typically aim for high generic dispensing rates as a measure of cost containment, but some generics are linked to higher spending, and therapeutic alternatives could offer substantial savings. Substitution of high-cost generics may provide a simple pathway to offer the same therapeutic benefit at lower cost to patients and insurers, with discounts reaching 80% or more.

THE LARGER TREND

The estimated savings may represent the lower end of the spectrum, because additional tools such as utilization controls restricting access to certain products could be implemented when spending on high-cost generics is identified, according to Johns Hopkins. 

Future avenues for research include examining whether the estimated savings from generic substitution would differ under different sample selection criteria or across payer type.
 

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