Policy Background

States have adopted a variety of strategies to increase prescriptions for generic drugs rather than brand names, because switching to generic drugs can save money and in some cases, provide greater efficacy and safety than newer brand-name drugs. On average, a generic drug costs about $45 less than a brand name drug and it is estimated that for each 1% increase in generic fill rate, pharmacy spend decreases by 1%.

A 2005 survey found that 34 of 37 interviewed states reported they require the generic to be dispensed when available; most allow this requirement to be overridden by the treating medical provider. For example, Texas saved more than $223 million simply by changing its prescription pads, making it easier for doctors to prescribe generics. Other strategies to promote generics include preferred drug lists, lower co-pays, and educational campaigns directed at both consumers and prescribers. According to the generic drug industry, Massachusetts saved more than $150 million by changing a policy related to the way doctors can prescribe brand drugs when a generic is available, and Florida saved roughly $30 million by eliminating special brand name “carve outs” in its Medicaid program. The Georgia prior authorization program for anti-ulcer medications increased the use of generics from 31% to 79% for net savings of $20.6 million the first year. The Consumers Union Best Buy Drugs initiative, which reviews evidence-based studies and recommends medications which are effective and cost-effective, is an example of an educational campaign aimed at consumers which frequently recommends generics and over-the-counter medications, see the Best Buy Drugs website at: http://www.crbestbuydrugs.org/ There is even greater potential for increased use of generics and significant savings in the next several years, because the patents of many top-selling brand name drugs are expiring – in fact more than $38 billion in drug sales are expected to lose patents over the next 4 years.

Patent policy and law are also relevant as states seek to lower drug prices overall. Contrary to popular belief, states actually have a large role in regulating the use of patents. Courts have held that patents are property subject to state regulation and control through contract law and even the power of eminent domain. The pharmaceutical industry has been aggressive in challenging state rights to regulate abuse of pharmaceutical patents, threatening litigation against compulsory license proposals in West Virginia and challenging on patent law grounds the District of Columbia’s law limiting unconscionable pricing of medicines. States are continuing to pursue initiatives to limit price-gouging, however, and are aggressively defending their initiative against industry challenges based on patent law.

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