Today, many stores offer the $4 programs. However, little is known about use of these low-cost generic programs. Our study is the first we are aware of to quantify access to $4 programs and evaluate who used these programs in Medicare.
Our study yields several important findings:
First, in 2007 the use of the $4 program was quite limited. The majority of older Medicare beneficiaries (86%) never filled a prescription for an eligible generic drug at a $4 store. This represents a loss of potential savings for the Medicare program and for patients. However, our findings also point to an important reason for why use of these programs may be low. We estimated, after taking driving costs into consideration, that only 53.2% of nonusers would save. On average, the net savings was $32, and only 2% would save over $200. Thus Medicare and the healthcare system overall could save substantial sums,5
while individual patients are unlikely to see substantial savings. It may be most effective to target the 2% of the Medicare population who could potentially save the most in switching, which is readily done using claims data, as we demonstrate.
Second, driving distance was strongly associated with the use of the program. It stands to reason that improved accessibility could lead to increased use of low-cost generics. As more stores offer $4 programs in subsequent years and some programs begin offering mail-order services for these drugs,1
more Americans can easily access to low-cost drugs.
Third, several beneficiary characteristics were associated with the uptake of the $4 program. Those who had higher risk scores, more co-morbidities, and/or used more $4 drugs, were more likely to use the program. In addition, those beneficiaries at some increased financial risk; i.e. those who had no coverage in the coverage gap and those who lived in Zip-Codes with lower income families were more likely to use the program. These findings are encouraging because they suggest that seniors who could benefit most were using these low-cost alternatives. Asians and Blacks were less likely to use the program than Whites. It would be important to assess why these racial/ethnic differences arise—are they due to access, knowledge, or use of different types of pharmacies?
There are several strengths to our study. We used national Medicare Part D data and believe these data are the best available to study these questions for several reasons. First, our data is a 5% random sample of those enrolled in PDPs, so it is generalizable. Second, CMS considers highly-discounted drugs filled in $4 programs as “usual and customary” and Part D plans adjudicate the $4 claims so we can observe these drugs in the claims data.12
For example, if the beneficiary’s coinsurance is 25% in the initial coverage period, the beneficiary only pays $1 ($4*25%) and the plan pays the rest. Thus, missing claims from $4 programs would be less of a problem among the Medicare population compared to a commercial population.
It is possible that some drugs filled in the $4 program were missing in claims if beneficiaries chose not to present their Medicare Part D plan cards.13
We believe the missing claims would not have significant effects on our results for several reasons. First, the proportion of users estimated in our study is larger than the estimated proportion of users (9%) found in a recent study using 2007 Medical Expenditure Panel Survey data.5
Second, almost all of the users of $4 programs in our sample used the $4 stores in the initial coverage period where they would have financial incentives to present their Medicare cards. They may not present their cards when they were in the coverage gap phase, but because we already captured them in the initial period our results modeling factors affecting users are unlikely to change. Third, even though beneficiaries paid the entire $4, they would have incentives to present their cards, because pharmacies would adjudicate these drugs in the claims so patients’ doctors can monitor patients’ medications. We acknowledge that it is possible that some pharmacies do not report these drugs to the patient’s insurance and we may miss them in our data. We believe the effect is likely small, but we are unable to know for sure using existing data.
There are some additional potential limitations to our study. First, we overestimate travelling costs because people are unlikely to drive to a $4 store solely to pick up their prescriptions. Nevertheless, the ability to calculate the driving distance and travelling costs is an important contribution: driving distance turns out to be a major factor associated with the use of $4 programs and omitting this variable could bias the results. Second, we only examined direct substitution of generics, while a larger potential savings could be realized if individuals were willing to switch their brand-name drugs, and not just their generics, for low-cost generics. Finally, we do not quantify the potential downsides of increased use of $4 generics,13
but we do acknowledge that these downsides are real and important to consider. For example, if prescriptions filed in the $4 program are not reported back to insurance or patients use more than one pharmacy, it may be difficult to monitor drug–drug interactions. Additionally, it is likely that $4 programs were created to attract people to the stores to buy other products, including non-prescription or prescriptions drugs not eligible for the $4 programs, which could potentially be more expensive.
In sum, 80% of American seniors in Medicare filled prescriptions for generic drugs that were commonly available at $4 per 30-day supply in 2007; only 16.3% used a $4 program in 2007. Once incorporating travelling costs, only 53.2% of nonusers would potentially save by switching to the $4 programs and the potential savings focus on a small proportion of beneficiaries. Potential policies could be considered to encourage the use of $4 generic programs among Medicare beneficiaries who have not been using and/or could save the most, including Blacks, those with less drug coverage, those with high prescription drug risk scores and those with easy access to a $4 store. However, because of only modest individual savings associated with switching additional incentives for most patients would likely be required before the Medicare program could experience any savings.