Generic Drugs Are Getting Squeezed Off Medicare Formularies. That Means Consumers Pay Higher Prices

Over forty three million Americans are enrolled in Medicare, the federal health care programs for seniors that has a substantial prescription drug benefit. But these beneficiaries are increasingly paying higher out of pocket costs at the pharmacy counter. Why? Because Medicare is increasingly keeping generics off formularies and instead using more expensive brand drugs. Congress should step in and solve this problem by ensuring that Medicare beneficiaries can get cheaper generic drugs.

In the past, Medicare Part D included more affordable generic drugs on formularies (the lists of medicines that may be prescribed and that are covered) as soon as they were launched. The average out of pocket cost for seniors is less than $6 per generic prescription. For brand prescriptions, the average out of pocket cost is over $40. But recently Medicare has been keeping lower cost generics off these lists and instead it is using more expensive brand drugs. And even if generic drugs are added to the formularies, Medicare Part D often takes years to include them or places them on non-generic tiers.

All this results in higher costs, both for the federal government and for consumers in the form of higher copays. The Department of Health and Human Services conducted a study in July 2018 and found that if available generics had been dispensed instead of brand drugs, Medicare Part D would have saved $3 billion. And Medicare beneficiaries spent an additional $1.1 billion out of pocket for brand drugs.

Seniors are no longer automatically benefiting from new and lower cost generic drugs and they are paying higher prices than they need to. Several months ago we submitted a letter on behalf of consumer groups on this very issue, urging Medicare to include generic drugs on generic tiers and brand drugs on brand tiers, so seniors do not have to pay higher prices.

What are the solutions? Congress should act. It could require Medicare to grant access to generic drugs when they are launched. To provide seniors full access to lower cost medicines, when a new generic drug launches in the United States, this drug should immediately be included on Medicare Part D formularies, reducing costs for both the federal government and seniors.

Congress should also mandate that Medicare treat brand drugs as brand drugs and generic drugs as generics. The two kinds of drugs should be placed on different tiers; lower cost generics should go on the inexpensive generic tier. This would also lower out of pocket costs for seniors in Medicare. Finally, Congress should create a specialty drug tier for specialty generics and biosimilars (generic versions of biologic drugs). This reform would lower out of pocket costs for these specific kinds of drugs, which tend to be quite expensive.

While Congress is considering HR 3 and other major drug pricing reforms, it should also consider these Medicare reforms to lower costs. Seniors and Medicare are paying far too much, and seniors should be able to get affordable generic drugs when they need them.