Buying Brand-Name Drugs Over Generics Raises Medicaid Costs

Medicaid, the joint U.S.-state health program for the poor, spent $329 million extra in 2009 purchasing 20 brand-name drugs instead of available generic copies, according to an American Enterprise Institute report.

The study included contraceptives, respiratory medicines and antibiotics. Risperdal, New Brunswick, New Jersey-based Johnson & Johnson (JNJ)’s antipsychotic, prescribed in generic form exclusively would have saved $60 million in 2009, the report released today found. Teva Pharmaceutical Industries Ltd. (TEVA), based in Petah Tikva, Israel, and Canonsburg, Pennsylvania-based Mylan Inc. make generic versions of the drug.

“There’s $300 million-plus in money that’s being left on the table in the Medicaid program at a time when we can’t afford” it, Alex Brill, the study’s author, said in a telephone interview. “We’re not talking about taking away services, we’re talking about providing them in a more efficient way.”

State rules requiring generics may be a way to reduce Medicaid’s drug costs, said the report from the Washington-based public policy group that favors limited government.

Pharmacies may substitute drug copies for brand-name treatments for Medicaid patients without a doctor’s directive in 49 states, and 16 require pharmacists to use a generic unless the doctor specifies, according to a 2010 analysis by Washington consulting firm Avalere Health.

The 2010 health-care overhaul is expected to add 16 million people to Medicaid by 2019, the Congressional Budget Office estimates. That will put more pressure on the program to save money, said Brill, a research fellow at the institute.

Overall Cost

Drug costs comprised 5.3 percent, or $20 billion, of Medicaid’s $374 billion cost in 2009, according to the Centers for U.S. Medicare and Medicaid Services. The federal government paid 67 percent of the drug expenses. Substituting the 20 medicines highlighted in the report with generics would have reduced that spending by 1.6 percent.

Generics use is a well-established cost-saving practice, and it’s up to states to push for wider adoption, according to Mary Kahn, a spokeswoman for the U.S. Centers for Medicare and Medicaid Services. “Use of generics is really a state call,” she said in an e-mail.

The top-20 list of drugs Medicaid overspent on in 2009 includes five anticonvulsants, which are under Food and Drug Administration scrutiny because of patient and provider concerns that generic versions don’t work as well to treat epilepsy as their brand-name counterparts. The “estimated waste” cited by the report on the five treatments totals $169 million, more than half of the program’s additional costs cited by the study.

Doctors’ Group Opposition

The American Academy of Neurology says in a statement on its website it opposes the generic substitution of anticonvulsant drugs to treat epilepsy without an attending physician’s approval.

“For anticonvulsant drugs, small variations in concentrations between name-brands and their generic equivalents can cause toxic effects and/or seizures when taken by patients with epilepsy,” according to the statement.

Brill said he couldn’t comment on whether generics should be substituted for anticonvulsants. “We have to leave it to the FDA to determine what’s interchangeable,” he said.

The FDA awarded the University of Maryland School of Pharmacy a $1.1 million, two-year contract last year to study whether brand and generic anti-epileptic drugs may be switched safely and effectively.

To contact the reporters on this story: Anna Edney in Washington at aedney@bloomberg.net; Drew Armstrong in Washington at darmstrong17@bloomberg.net

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net; Reg Gale in New York at rgale5@bloomberg.net

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