Generics of Older Drugs Could Have Saved Medicare Billions, Study Says

Medicare and its beneficiaries could have saved an estimated $17.7 billion over a seven-year period on generic versions of older medicines instead of paying for newer, chemically similar but more expensive brand-name drugs, according to a study published in the Annals of Internal Medicine last month.

The study was conducted as part of the Collaboration for Research Integrity and Transparency at Yale Law School, funded by the Laura and John Arnold Foundation. The intent was to estimate the potential savings associated with using racemic precursors instead of their single-enantiomer versions to the Medicare Part D drug benefit program and its beneficiaries. 

Between 2011 and 2017, Medicare and beneficiaries could have saved the $17.7 billion through substitution of 12 single-enantiomer drugs with their racemic precursors. Substitution of armodafinil for modafinil would have actually increased Medicare spending, but substitution of esomeprazole for omeprazole accounted for more than three quarters of the total estimated savings, and approval of generic esomeprazole in January 2015 contributed to an approximate 20% decline in total savings from 2015 to 2017 when compared with 2012 to 2014. 

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The study analysis was limited to the seven-year period, which is only a partial amount of the time that these drugs have been available, and does not take spending by Medicare Advantage plans into consideration. 

Researchers could not account for actual rebates, which for some branded drugs (including esomeprazole), may be substantially higher than 26.3%, the highest rebate reported by Medicare for any therapeutic class in 2014. 

The authors, led by Alexander C. Egilman, BA, assumed that there was complete substitution of racemic precursors, although patient-specific risk–benefit considerations will influence drug choice, and not all substitutions would be clinically appropriate. 

Finally, savings vary depending on several factors, such as beneficiary income status and Part D plan benefit structure, as well as future market entry of generic single-enantiomer drugs. Nevertheless, while $17.7 billion is only 2.1% of total Medicare Part D spending from 2011 to 2017, the study findings suggest that racemic substitution for single-enantiomer drugs offers an opportunity for Medicare drug savings.