Impacts of Generic Competition and Benefit Management Practices on Spending for Prescription Drugs: Evidence from Medicare’s Part D Benefit

Purpose – This paper aims to investigate why brand-name drugs are priced higher than their generic equivalents in the US market. The authors hypothesize that some consumers have a preference for brand names, which outweighs the cost savings realized by switching to generics. Consumers may prefer a brand drug because the brand may have a higher perceived quality due to advertising and other promotional activities. Additionally, individuals are habitual in their consumption of prescription drugs, which leads to continued use of the brand in the face of generic competition. Design/methodology/approach – The authors develop a structural demand model and proceed to estimate it using wholesale price and demand data from the years 2000 through 2004. Findings – The results of our analysis reveal that customers have a strong preference for brand drugs. In addition, consumers exhibit high switching costs for prescription drugs. Originality/value – Considering the price and quantity of prescriptions filled each day, determining why brand drugs do not lower their prices to compete with their generic equivalents is an important question. Unfortunately, the existing literature only acknowledges this counter-intuitive business practice, but does not mathematically explain it. The authors address this knowledge gap in literature and provide important insight for all players in this industry including consumers, pharmaceutical manufacturers and health insurance companies.

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Adverse Selection in Retiree Prescription Drug Plans

Forum for Health Economics & Policy ◽

10.2202/1558-9544.1062 ◽

2006 ◽

Vol 9 (1) ◽

Cited By ~ 2

Author(s):

Dana P Goldman ◽

Geoffrey Joyce ◽

Pinar Karaca-Mandic ◽

Neeraj Sood

Keyword(s):

Adverse Selection ◽

Prescription Drugs ◽

Claims Data ◽

Drug Coverage ◽

Switching Behavior ◽

Part D ◽

Drug Benefits ◽

Prescription Drug Plans ◽

Plan Selection ◽

Independent Effects

We used claims data from a large U.S. employer that introduced changes in its medical and drug coverage offerings in 2002 for non-Medicare eligible retirees. In addition to the existing plans, the employer introduced two new plans in 2002 that were less generous both in terms of medical and drug coverage. Further, one of the new plans had an annual benefit limit of $2,500 on prescription drugs, similar to the doughnut hole in the standard Medicare Part D benefit. We examined beneficiaries switching behavior in response to the new choice set and estimated the independent effects of medical and drug benefits on plan selection. We found that beneficiaries in better health were more likely to switch to the new, less generous plans. While the generosity of the medical benefit played a more important role in choosing a plan, choices did not vary significantly by health status. In contrast, sicker individuals were more likely to enroll in plans with generous drug benefits. This suggests that drug coverage may be more susceptible to adverse selection than medical insurance.

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TRENDS IN UTILIZATION OF GENERIC AND BRAND-NAME LDL-LOWERING PRESCRIPTION DRUGS AMONG MEDICARE PART D BENEFICIARIES BETWEEN 2013 AND 2017

Journal of the American College of Cardiology ◽

10.1016/s0735-1097(20)32467-0 ◽

2020 ◽

Vol 75 (11) ◽

pp. 1840

Author(s):

Hussain Lalani ◽

Andrew Sumarsono ◽

Muthiah Vaduganathan ◽

Ambarish Pandey

Keyword(s):

Prescription Drugs ◽

Medicare Part D ◽

Medicare Part ◽

Brand Name ◽

Part D

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Impact of Medicare Part D on out-of-pocket drug costs and utilization for patients with cancer.

Journal of Clinical Oncology ◽

10.1200/jco.2013.31.31_suppl.275 ◽

2013 ◽

Vol 31 (31_suppl) ◽

pp. 275-275

Author(s):

Sheetal Mehta Kircher ◽

Michael Johansen ◽

Matthew M. Davis

Keyword(s):

Prescription Drug ◽

Prescription Drugs ◽

Medicare Part D ◽

Drug Costs ◽

Medicare Part ◽

Prescription Drug Coverage ◽

Medicare Beneficiaries ◽

Part D ◽

Patients With Cancer ◽

Per Capita

275 Background: Medicare Part D was designed to reduce out of pocket (OOP) costs for Medicare beneficiaries, but the extent to which this occurred for patients with cancer has not been measured. The aim of this study is to quantify the impact of Part D eligibility on OOP cost for prescription drugs and utilization for cancer patients. Methods: Differences-in-differences analyses were used to estimate the effects of Medicare Part D eligibility on OOP drug costs, by comparing 4 year periods before and after Part D implementation. Analyses were based on data from the publicly available Medical Expenditure Panel Survey, a nationally representative, all-payer sample of the United States non-institutionalized civilian population. Our analysis compared per-capita OOP burden between Medicare beneficiaries (age 65+) with cancer to near-elderly individuals age 55-64 years old with cancer. Results: 2,077 near-elderly individuals with cancer and 4,723 individuals with Medicare and cancer were included (total n=6,800), representing over 85 million people. Prescription drug coverage increased among individuals with Medicare from before Part D (39%) to after (65%); in contrast, prescription drug coverage among the near-elderly remained stable before vs. after Part D (82.4% vs. 81.4%). The mean per-capita OOP cost for Medicare beneficiaries with cancer before Part D was $1,111 (SE ±45) and decreased to $694 (±35) after implementation of Medicare Part D—a decline of 37%. Compared with changes in OOP drug costs for non-elderly patients with cancer over the same period, implementation of Medicare Part D was associated with a further reduction of $286 per person. OOP costs for cancer-associated drugs (i.e., antineoplastic, pain medications, anti-emetics) accounted for 6.5-11.1% of the total OOP cost with no significant trends between 2002-2010. Conclusions: The implementation of Medicare D has significantly reduced OOP prescription drug costs for seniors with cancer, beyond trends observed for younger patients. Considering prescription drugs for all medical conditions, cancer associated drugs compose a minority of the cost, highlighting that cancer patients have many comorbid conditions contributing to overall costs.

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Medicare Part D spending for the 10 costliest oral anticancer drugs.

Journal of Clinical Oncology ◽

10.1200/jco.2020.39.28_suppl.52 ◽

2021 ◽

Vol 39 (28_suppl) ◽

pp. 52-52

Author(s):

Kaitlyn McBride ◽

Sophie Snyder

Keyword(s):

Prescription Drugs ◽

Cost Effective ◽

Medicare Part D ◽

Medicare Part ◽

Drug Spending ◽

Part D ◽

Annual Total ◽

Wholesale Acquisition Cost

52 Background: Novel oral targeted drugs are being used more frequently to treat many cancers and have substantially improved clinical and survival outcomes. Due to the long treatment durations of many of these medications, which are given continuously until patient progression, per-patient lifetime costs can be high. This study aimed to identify the ten oral anticancer therapies with the highest annual Medicare Part D spending. Methods: Descriptive statistics were performed on data obtained from the CMS Medicare Part D Drug Spending Dashboard and IBM Micromedex RED BOOK, from 2018-2019. Medicare Part D dashboard includes total and average drug spending, and number of beneficiaries utilizing the drug. RED BOOK provides current and historical average wholesale pricing (AWP) data for all prescription drugs. The wholesale acquisition cost (WAC) was calculated from the AWP to evaluate trends in price. We identified the ten anticancer brand-name medications in 2019 with the highest annual Part D spending and reported changes in average spending and number of unique beneficiaries for each drug from 2018-2019. Results: In 2019, Revlimid had the highest annual total Part D spending at $4.6 billion, followed by Imbruvica with $2.4 billion; these drugs also had the greatest number of beneficiary utilizers. From 2018-2019, change in average spending per dosage unit was greatest for Zytiga (34%), however among all drugs, average spending per beneficiary in 2019 was lowest for this medication ($58,074). From 2018-2019, WAC and average spending per dosage unit increased for all of the top ten drugs, as well as the number of total beneficiaries utilizing each drug, except for Zytiga and Sprycel. Conclusions: Oral anticancer therapies provide high value for patients, including improved quality of life and survival. Annual costs for these drugs are high, however spending on inpatient hospital services remains a greater share of total Medicare spending in aggregate and on a per beneficiary basis. Emerging one-time curative treatments for cancer may prove most cost-effective in the long-term by eliminating the need for continuous medication use and hospital care, while improving patient outcomes.[Table: see text]

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Unhealthy Weight Management Practices and Non-medical Use of Prescription Drugs

American Journal of Preventive Medicine ◽

10.1016/j.amepre.2016.09.015 ◽

2017 ◽

Vol 52 (2) ◽

pp. 215-219 ◽

Cited By ~ 2

Author(s):

Heather B. Clayton ◽

Zewditu Demissie ◽

Richard Lowry ◽

Elizabeth A. Lundeen ◽

Andrea J. Sharma ◽

...

Keyword(s):

Weight Management ◽

Prescription Drugs ◽

Management Practices ◽

Unhealthy Weight

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Profit-Seeking Behavior of Medical Providers and Generic Competition in the Pharmaceutical Market: Evidence from Taiwan

The B E Journal of Economic Analysis & Policy ◽

10.1515/bejeap-2013-0066 ◽

2013 ◽

Vol 14 (1) ◽

pp. 241-275

Author(s):

Ya-Ming Liu ◽

Chee-Ruey Hsieh

Keyword(s):

Health Care ◽

Market Share ◽

Prescription Drugs ◽

Empirical Finding ◽

Pharmaceutical Market ◽

Price Ratio ◽

Medical Providers ◽

Generic Competition ◽

Generic Market ◽

Seeking Behavior

Abstract Promoting competition between brand-name and generic drugs has long been recognized as an approach adopted to save on health care costs. However, there are substantial variations in the extent of the generic competition across countries. This study empirically estimates the determinants of the generic market share in Taiwan, where medical providers are in a position to profit directly from the sale of prescription drugs. Our empirical results point out that the profit-seeking behavior of medical providers plays an important and dominant role behind generic competition in the pharmaceutical market. As a result, there is a positive association between the generic-to-brand price ratio and the generic market share in Taiwan’s pharmaceutical market, which contrasts with the conventional empirical finding that the relationship between the generic-to-brand price ratio and generic market share is negative. An important implication of our study is that the profit-seeking behavior of medical providers undermines the policy effectiveness of using generic competition as the cost containment strategy in the health care market.

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Technological Change and Risk Adjustment: Benefit Design Incentives in Medicare Part D

American Economic Journal Economic Policy ◽

10.1257/pol.20140171 ◽

2017 ◽

Vol 9 (1) ◽

pp. 38-73 ◽

Cited By ~ 17

Author(s):

Colleen Carey

Keyword(s):

Technological Change ◽

Risk Adjustment ◽

Medicare Part D ◽

Medicare Part ◽

Insurance Markets ◽

Generic Competition ◽

Part D ◽

Benefit Design ◽

Health Insurance Markets ◽

Drug Entry

Subsidized health insurance markets use diagnosis-based risk adjustment to induce insurers to offer an equitable benefit to individuals of varying expected cost. I demonstrate that technological change after risk adjustment calibration—new drug entry and the onset of generic competition—made certain diagnoses profitable or unprofitable in Medicare Part D. I then exploit variation in diagnoses' profitability driven by technological change to show insurers designed more favorable benefits for drugs that treat profitable diagnoses as compared to unprofitable diagnoses. In the presence of technological change, risk adjustment may not fully neutralize insurers' incentives to select through benefit designs. (JEL G22, H51, I13, I18, L65, O33)

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