Many State Medicaid Programs Find Generic Drugs Can Cost More Than Brand-Name Pharmaceuticals
In the "latest twist in the convoluted world of government drug pricing," some state Medicaid programs are finding that generic drugs may cost them more than brand-name pharmaceuticals, the Wall Street Journal reports. The "main reason" for the price discrepancy is that a 1990 federal law requires drug companies to discount brand-name drugs reimbursed by Medicaid by a minimum of 15.1% of the average wholesale price. Generic drugs only have to be discounted by 11%. The brand-name rebate is sometimes even larger because the discount is based on the manufacturer's "best price" in the private market, which may be heavily discounted to begin with due to competition among drug companies. According to Arkansas Medicaid Director Ray Hanley, some brand-name drugs used by state Medicaid programs are discounted "40% or more." In addition, the Journal reports that under a 1984 federal law, drug makers who "successfully challenge" a brand-name drug's patent are allowed to sell a generic version without additional competition for 180 days, in order to recoup legal costs. During that period, the generic maker will often "price its product just below what the brand-name version sells for," meaning state Medicaid programs would likely pay more for the generic than for a discounted brand-name drug. Indiana Medicaid Director Melanie Bella said, "Historically, generics have been a proxy for 'lower costs.' That may be changing." Dr. Timothy Clifford, a pharmacy consultant to Maine's Medicaid program, said that switching to generics without examining the costs of brand-name drugs can "add up to millions of dollars in unseen costs" for Medicaid programs. He added, "Until it's priced like a generic, it's not a generic."
Although 28 states have laws that "require or encourage" their Medicaid programs to purchase generics if available, some, like Indiana, are reconsidering their policies. Other states are "fight[ing] back" by placing high-priced generic drugs on restricted prescription lists, similar to tactics used with brand-name drugs. However, "[t]urning up the heat on generics can be risky," the Journal reports, because without the ability to recoup legal costs during the exclusive 180-day selling period, generic makers might not "take the risk of challenging" a brand-name patent, Jake Hansen, Barr Laboratories' vice president for government affairs, said. Hansen added that if generic drug makers did not challenge patents, "consumers would be stuck paying monopoly prices on brand names" (Caffrey, Wall Street Journal, 2/13).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.