Skip to main content

Medicare Formulary Coverage of Brand-Name Drugs and Therapeutically Interchangeable Generics

BACKGROUND

U.S. prescription drug sales, excluding physician-administered drugs, account for nearly 10% of total healthcare spending. Generic substitution is critical to curtailing prescription drug spending, but not all brand-name drugs have an approved bioequivalent generic. However, for many, therapeutically interchangeable generics are available, offering potential cost savings if substituted. The Center for Medicare & Medicaid Services (CMS) has proposed an indication-based formulary design starting in 2020,1 allowing Medicare Advantage and Part D prescription drug plans to cover drugs only for select indications, which could increase formulary negotiating power and secure more competitive pricing.

OBJECTIVE

To understand if and how 2016 Medicare prescription drug plan formularies incentivize selection of brand-name drugs without bioequivalent generics compared to their corresponding therapeutically interchangeable generic drugs through tier placement and utilization management.

METHODS AND FINDINGS

We used June 2016 CMS Prescription Drug Plan Formulary Files, inclusive of 374 Medicare Advantage and stand-alone Part D formularies. We included the top 100 non-biologic drugs as measured by total retail sales in 2016.2 We included all brand-name drugs without an FDA-approved bioequivalent generic as of June 2016, but with at least one therapeutically interchangeable generic, defined as a generic drug that has similar clinical effects, active ingredients, and safety profile, but a different overall chemical composition compared to the branded drug.3 For this study, therapeutically interchangeable generics were determined using the U.S. Pharmacopeia Medicare Model Guidelines or based on prior studies.4, 5

For each brand-name drug and its corresponding therapeutically interchangeable generic(s), we compared tier placement and utilization management. Tier placement broadly determines beneficiary out-of-pocket costs, the lowest of which are for drugs in tier 1 and 6; tier 1 generally includes preferred medications and tier 6, when present, includes “select-care” generics. Utilization management encompasses three separate strategies to limit prescribing: step therapy, prior authorization, and quantity limits, which were used to calculate a restrictiveness score based on the number of strategies used. For both estimates, for each formulary, the brand-name drug was compared to the therapeutically interchangeable generic available at the lowest tier or with the least restrictive utilization management; this information was used to calculate percentages across all covering formularies, which were summarized as medians for all drugs that met our study’s inclusion criteria. All statistical analyses were performed using R Studio version 3.2.5.

There were 23 brand-name drugs that met the inclusion criteria, for which there was a median of 3.0 (range, 1–9) therapeutically interchangeable generic drugs (Table 1). At least one Medicare formulary covered both the brand-name and corresponding therapeutically interchangeable generic for 23 drugs (95.8%; ranolazine was not covered by any formulary), although the median proportion of formularies providing no brand-name drug coverage was 42.4% (IQR, 2.5–71.5).

Table 1 Medicare Prescription Drug Plan Formulary Coverage of the Top 100 Brand-Name Drugs in 2016 Without a Bioequivalent Generic but with a Therapeutically Interchangeable Generic, Including Tier Placement and Utilization Management

The median proportion of formularies that placed therapeutically interchangeable generics in a lower tier than the corresponding brand-name drug was 86.0% (IQR, 85.5–90.3). For 17 of 23 (73.9%) brand-name drugs, more than 10% of formularies placed the brand-name and therapeutically interchangeable generic on the same tier.

For 10 (43.5%) brand-name drugs, 50% or more of formularies did not use any utilization management restrictions, whereas for 14 (60.9%), more than 10% of formularies had equivalent utilization management restrictiveness scores for brand-name and their corresponding therapeutically interchangeable drugs.

DISCUSSION

In 2016, more than 85% of Medicare prescription drug plan formularies incentivized the use of therapeutically interchangeable generic drugs that could be substituted for brand-name drugs through tier placement and utilization management. However, a substantial portion of formularies provided similarly restrictive coverage of brand-name drugs and their therapeutically interchangeable generics, including equivalent tier placement or utilization management, a missed opportunity to incentivize prescribing of less costly generics. While our study focused on therapeutically interchangeable generic drug coverage, our findings align with a study showing that while most 2016 Part D formularies incentivized bioequivalent generic drugs, there were formularies offering more favorable placement for brand-name drugs.6

Medicare prescription drug formulary data are not linked to beneficiary spending data, limiting our understanding of actual patient out-of-pocket costs for brand-name and therapeutically interchangeable generic drugs. Nonetheless, our findings can inform the proposed 2020 indication-based formulary design, suggesting that restricted coverage of brand-name drugs and favored coverage of their therapeutically interchangeable generics might further incentivize the use of generic drugs and potentially reduce both Medicare and beneficiary spending.

Data Access and Responsibility

All authors had full access to all the data in the study and take responsibility for the integrity of the data and the accuracy of the data analysis.

References

  1. 1.

    U.S. Centers for Medicare and Medicaid Services. Indication-Based Formulary Design Beginning in Contract Year (CY) 2020. August 2018; https://www.cms.gov/newsroom/fact-sheets/indication-based-formulary-design-beginning-contract-year-cy-2020. Accessed August 28, 2019.

  2. 2.

    Sedelmeier G, Sedelmeier J. Top 200 Drugs by Worldwide Sales 2016. Chimia (Aarau). 2017;71(10):730.

    CAS  Article  Google Scholar 

  3. 3.

    Johnston A, Asmar R, Dahlof B, Hill K, Jones DA, Jordan J, et al. Generic and therapeutic substitution: a viewpoint on achieving best practice in Europe. British Journal of Clinical Pharmacology. 2011;72(5):727-30.

    Article  Google Scholar 

  4. 4.

    Johansen ME, Richardson C. Estimation of Potential Savings Through Therapeutic Substitution. JAMA Intern Med. 2016;176(6):769-75.

    Article  Google Scholar 

  5. 5.

    Lanthier M, Miller KL, Nardinelli C, Woodcock J. An improved approach to measuring drug innovation finds steady rates of first-in-class pharmaceuticals, 1987-2011. Health Aff (Millwood). 2013;32(8):1433-9.

    Article  Google Scholar 

  6. 6.

    Socal MP, Bai G, Anderson GF. Favorable Formulary Placement of Branded Drugs in Medicare Prescription Drug Plans When Generics Are Available. JAMA Intern Med. 2019;179(6):832-3.

    Article  Google Scholar 

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to Joseph S. Ross MD, MHS.

Ethics declarations

Conflict of Interest

In the past 36 months, Dr. Shah received research support through Mayo Clinic from the Food and Drug Administration to establish Yale-Mayo Clinic Center for Excellence in Regulatory Science and Innovation (CERSI) program (U01FD005938); the Centers of Medicare and Medicaid Innovation under the Transforming Clinical Practice Initiative (TCPI); the Agency for Healthcare Research and Quality (R01HS025164; R01HS025402; R03HS025517); the National Heart, Lung and Blood Institute of the National Institutes of Health (NIH) (R56HL130496; R01HL131535); the National Science Foundation; and the Patient Centered Outcomes Research Institute (PCORI) to develop a Clinical Data Research Network (LHSNet); Dr. Ross received research support through Yale University from Johnson and Johnson to develop methods of clinical trial data sharing, from Medtronic, Inc. and the Food and Drug Administration (FDA) to develop methods for postmarket surveillance of medical devices (U01FD004585), from the Food and Drug Administration to establish Yale-Mayo Clinic Center for Excellence in Regulatory Science and Innovation (CERSI) program (U01FD005938), from the Blue Cross Blue Shield Association to better understand medical technology evaluation, from the Centers of Medicare and Medicaid Services (CMS) to develop and maintain performance measures that are used for public reporting (HHSM-500-2013-13018I), from the Agency for Healthcare Research and Quality (R01HS022882), from the National Heart, Lung and Blood Institute of the National Institutes of Health (NIH) (R01HS025164), and from the Laura and John Arnold Foundation to establish the Good Pharma Scorecard at Bioethics International and the Collaboration on Research Integrity and Transparency (CRIT) at Yale; all remaining authors declare no potential competing interests.

Additional information

Publisher’s Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Vijay, A., Gupta, R., Liu, P. et al. Medicare Formulary Coverage of Brand-Name Drugs and Therapeutically Interchangeable Generics. J GEN INTERN MED 35, 1928–1930 (2020). https://doi.org/10.1007/s11606-019-05432-6

Download citation