In this study, we evaluated the relation between three state-level policies and generic substitution rates after the patent expiration of Zocor, one of the world’s top-selling medications. After adjusting for two generic substitution policies that affect either the pharmacist’s or patient’s ability to influence whether a generic is medication is filled, and adjusting for prior authorization policies limiting the use of brand-name Zocor, we found that laws providing patients with greater discretion in determining generic drug substitution were most influential. Requiring patients to provide consent prior to generic substitution led to approximately a 25% reduction in generic substitution, while the other policies had no statistically significant effect in our adjusted model.
It is not surprising that requiring patients to provide consent would limit generic substitution. Recent surveys indicate that most patients believe that generics are safe and effective, that generics offer greater value than branded medications, and that more Americans should use generics.12
However, a majority of patients do not agree when asked if they, personally, prefer to use generics, and poor patients and less educated patients a group more likely to be covered by Medicaid - are least likely to express positive views of generics.12,13
It may be the most vulnerable patients, those for whom cost is the greatest barrier, that refuse generic substitution when offered. This may explain why patients who live in poorer neighborhoods are less likely to use generic medications,14
and may adversely affect patient adherence to essential medications.15
Pharmacists likely are more comfortable with generics than patients, which may explain why we found little effect of mandatory generic substitution on generic fill rates.16
The minimal effect of prior authorization requirements on generic substitution was surprising and suggests that generic substitution regulations are more potent stimuli for generic use upon patent expiration.
While patient consent requirements were strongly associated with generic substitution of simvastatin, we found no relationship between any of the regulations studied here and rates of switching from branded Lipitor, which did not have a generic alternative. Policymakers should be aware that these regulations may have the greatest effect on substitution for the same generic molecule, with little effect on switching among other molecules in the class.
Costs per prescription were substantially lower in states with generic substitution laws that did not require patient consent. However, the differences we observed may be attenuated by a number of factors. The spending reported in the aggregate Medicaid files reflect direct payments to pharmacies, set by each state Medicaid program as a portion of the average wholesale price (AWP) plus a dispensing fee for that pharmacy. States vary in how they set the proportion of AWP that is included in the retail price and the level of dispensing fee. States with more lenient generic substitution laws may be more aggressive about setting lower prescription drug prices for branded medications or negotiating rebates from manufacturers which could reduce the potential savings we estimate from eliminating patient consent policies. In addition, for the first six months after generic entry, the simvastatin market was characterized by an oligopoly, as Teva Pharmaceuticals and Ranbaxy Laboratories shared a period of generic market exclusivity while Merck also introduced an “authorized” generic made through a contract with Dr. Reddy’s Laboratories.17
As a result, during this time, simvastatin prices only fell slightly. The first substantial simvastatin price reductions did not occur until the first quarter of 2007, when the oligopoly period ended and additional competitors entered the market.18
Nonetheless, the prices per prescription are substantially lower in states that do not require patient consent for generic substitution. Laws requiring patient consent likely reflect an attempt to preserve patient autonomy in making decisions about their medical care. While this is an important priority, it is likely that such policy decisions are made in the abstract, without a sense of their opportunity costs. Our findings provide policy-makers with insight into the anticipated costs of these regulations. By simply multiplying the proportion of drug costs for simvastatin saved in the year after patent expiration in states that did not require consent by the annual spending for medications nearing patent expiration, we can roughly estimate potential savings from implementing laws that eliminate patient consent requirements. If the savings experienced by states that do not require patient consent were extended to states that currently do require patient consent, we would expect savings of over $100 million for state Medicaid programs for only 3 medications, Lipitor, Zyprexa, and Plavix, in the year after their respective patents expire. These projected savings would only be for Medicaid, which accounts for about 10% of total drug purchasing nationwide. Additional savings could be expected for private payors and for Medicare part D plans. Policy-makers will need to decide if these foregone savings can be justified in order to provide patients with greater choice in the setting of current economic strains on the healthcare system.
Our study is limited by the population that we studied. Generic substitution rates in this Medicaid population were lower than was seen in commercially-insured patients.7
Similar studies in a commercially-insured population are needed before generalizing more broadly. We only evaluated generic substitution after patent expiration of a single medication; results should be confirmed for other medications. We also did not control for different copayment requirements in the states we studied, we could not fully control for all formulary coverage policies within states or the precise levels of prices and rebates worked out by each state (such as policies where reimbursement is based on Maximum Allowable Cost pricing) and we could not measure the intensity with which each state enforces its coverage preferences. We hoped to capture a proxy for formulary management by assessing prior authorization rules, which have been shown to influence drug use,4
but additional policies may have been influential as well. However, it is unlikely that copayment requirements or other formulary procedures closely track with consent laws and not the other two laws studied here; we think it is unlikely that our findings could be entirely due to unmeasured confounding.
As states and other payors continue to experience the strain of reduced revenue to support healthcare expenses, those that require patient consent prior to generic substitution may consider altering this legislation. While it is generally appealing to provide patients with more choice in their medical care, a more restrictive approach to generic substitution may lead to cost savings without compromising quality, providing greater opportunities to invest healthcare dollars more cost-effectively.