Generic Pileup: New Releases, Medicaid Changes on Collision Course

The patent cliff is here.

With it comes an onslaught of blockbuster brand-name drugs whose market exclusivity runs out, thus clearing the way for significantly lower-price prescription drugs which represent newfound revenue and profit for retail pharmacies and billions in health care savings for their patients.

At the same time as this new wave of generics hits the market, other events are transpiring that could threaten generic dispensing and pharmacy revenues.

Those events are part of the very complex health care system that is presently undergoing a transition under the Affordable Care Act (ACA) of 2010 of which the law’s constitutionality is now being challenged in the Supreme Court.

While that debate continues, implementation of parts of the law is proceeding.

Retail pharmacy associations are on alert with proposed changes to how retail pharmacies are reimbursed for generic drugs through Medicaid, which represented $20.5 billion in prescription drug expenditures for all beneficiaries in 2007, according to government statistics.

Generics play an important role in curtailing rising drug costs for states that support Medicaid beneficiaries. 

Outside of state and federal programs to aid healthcare recipients, many retail pharmacies have become low-cost providers of generic medications in an effort to drive traffic and market share.

Food Marketing Institute’s Cathy Polley, vice president for health and wellness and executive director of the FMI Foundation, pointed to the generic discount programs that many members now offer, following Wal-Mart’s rollout in 2006 of its $4, 30-day generic program.

“Each day, hundreds of supermarket pharmacies offer $4-a-month or reduced-price generic drug programs. Some supermarket chains have free generic drug programs for low-income consumers. These programs save consumers significant amounts of money and allow uninsured and underinsured individuals and patients on fixed incomes access to vital, generic drugs,” she said.

Generic utilization will become more critical if the ACA becomes fully implemented in 2016. At that point, some 16 million new people are expected to enter the Medicaid ranks, and another 16 million people are to become insured under the law’s individual mandate.

A majority of Medicaid prescriptions dispensed, about 69%, are lower-cost generics, which represent just 20% of total Medicaid drug expenditures. Higher-cost brand name drugs makeup 80% of total Medicaid drug expenditures.

“We estimate that for every 1% increase in generic dispensing in Medicaid it would save nearly $600 million annually. So the most effective way to control prescription drug spending is through increased generic utilization,” said Julie Khani, vice president, public policy for the National Association of Chain Drug Stores.