DECEMBER 01, 2005
Eileen Koutnik-Fotopoulos, Staff Writer

The cost of prescription drugs continues to climb into the billions of dollars, and currently represents 11% of all health care expenditures. The price tag is a concern for many Americans who need medications. For years, health care experts have been touting the use of generic equivalents of brand name drugs when they are available to reduce costs. A study of prescription drug spending within Medicaid suggested that generic substitutions would have saved $229 million, approximately 1% of the total amount reimbursed for prescription drugs by Medicaid in 2000. No studies to date, however, had predicted the potential financial savings of generic substitution beyond the Medicaid population.

Therefore, a group of researchers from the Brigham and Women's Hospital in Boston and the University of California, San Francisco, set out to estimate how much money could be saved by turning to generic drugs. The study, reported in the Annals of Internal Medicine (June 7, 2005), included adults 18 and older who participated in the Medical Expenditure Panel Survey (MEPS) Household Component, 1997-2000, a government survey of a representative sample of the civilian, noninstitutionalized US population. The participants had used at least 1 outpatient multisource drug that was available in both generic and brand name forms. The survey also included data on the amount spent on each brand name drug by both individuals and their insurance programs.

The researchers used the data to calculate the possible savings from substituting each brand name drug with a generic drug for more than 700 medications used by the participants. The results of the analysis indicated that 56% of all outpatient drugs were available in both generic and brand name forms. Of these drugs, 61% were administered as a generic. The use of generics increased over the course of the study, from 58% in 1997 to 64% in 2000. In that year, total medication expenditures for adults participating in MEPS were $53 billion for individuals <65 years old and $27 billion for participants >65 years of age.

If generics had been dispensed in all cases where both forms were available, the savings would have had a positive impact on patients' wallets. For example, individuals <65 would have seen a $46 per person reduction with a $78 per person savings for individuals >65 years of age. The estimated national savings associated with widespread generic substitution in 2000 was $5.9 billion per year for adults <65 (11.1% of all drug expenditures) and $2.9 billion per year for individuals >65 (10.7% of all drug expenditures). In terms of a national perspective, the potential annual savings with generics among adults <65 was $4.1 billion for individuals with employer-sponsored insurance and $388 million for individuals with Medicaid or public coverage. Adults >65 who were eligible for both Medicare and Medicaid saw a potential savings of $1.7 billion per year.

The researchers noted that the figures only represent averages. Actual savings for individuals or their insurance programs may differ. The study excluded the cost of drugs for children and drugs prescribed for patients in hospitals, nursing homes, or other health care institutions. The study proved, however, that when generics are available, drug spending in the United States dramatically decreases.

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