One of the successes in efforts to control medical costs has been the increasing use of generic drugs in place of brand name ones. Generics are generally orders of magnitude cheaper. Both payers and patients benefit because most payers have lower copays, if any, on generic drugs. The lower cost to patients also encourages greater compliance with prescribed medication. The Congressional Budget Office looked at the opportunities for further generic drug use in Medicare populations. (CBO Report)
Medicare Part D uses private plans to provide the benefit and these plans negotiate with drug companies. They obviously have a strong incentive to encourage the use of generic drugs. CBO used data from 2007 to determine how much generic use there was, what savings that use created and how much more savings might be possible. About one billion prescriptions were filled under Part D, 65% for generics. Although they were almost two-thirds of prescriptions, only 25% of Part D drug costs were for generics, demonstrating their much lower price.
CBO estimated that Part D saved about $24 billion and beneficiaries $9 billion due to use of generics. The incentives for Part D plans and their enrollees to use generics must be working–CBO found that even if there were full generic substitution, only about $5 billion more would have been saved. A number of brand-name drugs go off patent in the next couple of years, however, and full generic substitution for those would generate additional significant savings. There are few, if any, quality issues reported in regard to generic use, so policymakers should do everything possible to promote their use. Now if we only had generic hospitals and physicians!