Encouraging Generic Use Can Yield Significant Savings

November 2012

Rising prescription drug costs continue to be an issue of importance to patients, health insurers, and the federal government. One popular cost containment solution is encouraging the use of generic drugs over brand-name drugs. In general, utilization of generic medication is increasing in the United States. In addition to being lower cost, generic drug utilization is associated with increased medication adherence, which can lead to fewer hospitalizations and emergency department visits. The Congressional Budget Office (CBO) estimated that substituting generic for brand-name drugs was responsible for $33 billion in savings in 2007 for Medicare Part D, the Medicare prescription drug benefit. The CBO also estimated a potential $4 billion in additional savings from increased generic substitution in seven drug classes. In 2010, Jack Hoadley, Ph.D., collaborated with colleagues at Georgetown University, Social & Scientific Systems, and NORC at the University of Chicago on a HCFO-funded study that examined the extent of generic drug use in Medicare’s stand-alone drug plans for specific classes of drugs. They analyzed the impact of plan-level benefit design, formulary design, and overall program design on use of generics. Their findings on statins used to treat high cholesterol were published in the October 2012 issue of Health Affairs