The Generic Pharmaceutical Association is recommending that Medicaid reform efforts focus on potential savings from increasing generic utilization.

"Greater use of generic medicines can create even more savings than the $10 bil. that Congress is seeking" over the next five years, GPhA President Kathleen Jaeger said Sept. 19 at the association's first Annual Policy Conference in Washington, D.C.

Using "best practices to increase generic utilization will result in substitution rates approaching 60%," she said. "That's an 8% increase over today's 52% average."

Boosting generic usage to that level would generate savings of approximately $4 bil. a year, Jaeger said, twice the amount the Medicaid reform initiative is targeting.

Many states are encouraging substitution of generic drugs through simple changes in prescription pads. At least 33 states require a physician to specify if a brand drug must be used through a statement such as "dispense as written."

Massachusetts instituted a strict policy that requires pharmacists to dispense generic drugs unless doctors specify in writing that they want a brand drug instead. With the new policy in effect, spending on brand drugs with generic equivalents dropped from around $10 to $11 mil. a month to $200,000 to $300,000 a month.

In 2001, Texas implemented a new prescription pad that requires physicians to write "brand medically necessary" in order to prevent physicians' tendency to override the substitution of a generic for a brand drug. This change resulted in an estimated savings of $223 mil.

Other "best practices" that GPhA recommends include eliminating "carve-out" provisions that makes it easy for physicians to bypass generic drug substitutions, especially for mental health drugs.

In addition, the federal government should support state education and "counter-detailing" on the value of generics, GPhA said. Currently, such programs are not eligible for enhanced federal Medicaid match funding.

States should also be required to set co-payments for generic drugs at $0 to encourage Medicaid beneficiaries to request them, GPhA said.

Incentives to increase generic utilization appear to have widespread Congressional support. However, some caution against overly aggressive substitution programs.

A Republican staffer for the Senate Finance Committee stressed at GPhA's conference that any generic substitution practices dealing with therapeutic interchange causes the issue to become "increasingly problematic."

Another pressing issue is that budgetary guidelines could preclude Congress from counting the savings from increased generic utilization in the totals from the Medicaid reform proposal, the Republican staffer explained.

The Congressional Budget Office's Rule 14, a scoring rule instituted under the Medicare Integrity Program, prevents the government from recognizing savings when asking states to perform administrative tasks, such as encouraging generic substitution.

The Senate Finance Committee is considering challenging Rule 14 in order to allow the Medicaid reform proposals to include "scoring" of generic utilization initiatives.

Efforts under consideration by the Finance Committee include incentive payments if state programs meet certain generic utilization targets.

"The generic industry is strongly encouraging federal lawmakers to ensure reforms include incentives for doctors to prescribe, and pharmacists to dispense, generic medication," Jaeger said.

Pharmacy reimbursement is another key area of Medicaid reform for GPhA. Jaeger noted there have been a variety of proposals, "yet most failed to ensure adequate reimbursement to pharmacy as well as incentives for generic utilization."

"Only the widely available market price, or WAMP, which reflects the actual prices at which pharmacists can purchase the drug products, actually meets that standard," she said.

The Medicaid Commission's reform proposal suggests that pharmacy reimbursements be based on average manufacturer price rather than the average wholesale price (¹ Also see "CMS Drug Pricing Guidance Proposed In Medicaid Commission Report" - Pink Sheet, 5 September, 2005., p. 16).

The Administration and Congress want to reform reimbursements to pharmacists so that the reimbursement is close to the acquisition cost. The Finance staffer cited a report from the Office of the Inspector General which found that pharmacists dispensing generics achieve on average a 70% mark-up (² Also see "Medicaid Reimbursement Alternatives Proposed By HHS Inspector General" - Pink Sheet, 4 July, 2005., p. 15)

However, GPhA maintains that although the current system may be inefficient, it permits states to set maximum allowable costs for multi-source drug products and generate significant savings.

"It has been very successful at encouraging greater generic utilization and should not be replaced with a program that would lead to unnecessarily increased spending on brand pharmaceuticals," Jaeger stressed.

Other congressional activity that may benefit generics is a proposed change to the way prices of authorized generics are reported to Medicaid.

While not part of the Medicaid reform package, a proposal that would require that brand firms include authorized generics for the purposes of "best price" reporting is understood to be viewed favorably by congressional leadership.

The majority staffer expressed particular concern about authorized generic deals that, when part of a patent litigation settlement between a brand and generic firm, "artificially produce higher prices than otherwise the market would allow."

The change in statute is designed to "simply allow the authorized generic to sit in as a proxy for best price."

GPhA has been trying to affect administrative changes at the Centers for Medicare & Medicaid Services to link authorized generics to brands for best price reporting. The association hopes that by forcing greater discounting on brand sales, the change will discourage authorized generics.

Supporters of authorized generics argue that they are pro-consumer by driving down prices faster after a first generic launches. The generic industry argues that they cause long-term harm by devaluing 180-day exclusivity and thus discouraging patent challenges which promise earlier launches and more savings.

GPhA Medicaid Reform Goals Include Substitution Incentives, WAMP Pricing

More from Archive

More from Pink Sheet