When Do Brand Medications Cost Less Than Generics?

Loss of Exclusivity (LOE) for brand medications and the introduction of generics sets in motion activities to quickly convert new and existing prescriptions to the newly approved generic. Electronic Medical Records (EMR) and pharmacy dispensing systems are designed to prompt physicians and pharmacy staff that a new generic is available. The purpose of these system prompts is to reduce costs for patients and payers. However, there are exceptions when brand medications cost less than generics, which may impact prescribing and dispensing activities. Traditional Fee for Service (FFS) Medicaid plans like New York and Tennessee maintain a subset of brand products on their formularies post LOE for physicians and pharmacy to prescribe and dispense. The mandatory brand rebate (23.1%) plus the Consumer Price Index (CPI) penalties may extend discounts in excess of 80% of the brand WAC discount. The CPI penalty is a cumulative percentage calculated by taking the difference between the WAC price increase in a given year and the corresponding annual rate of inflation. For instance, if the inflation rate is 3% and a manufacture increases price 10%, the CPI penalty will be 7% for that year, and then increases each year if the manufacturer continues to increase price greater than the base CPI rate (i.e.: 3%).

Generic pharmaceuticals that have limited competition (i.e.: 180 day exclusivity periods) are not heavily discounted. While pharmacies buy generics for less than their innovator products, payers can dictate which product is to be dispensed. The rebates that the traditional Medicaid plans realize for these selected brands generate lower cost to the state than generics. Therefore, NY and TN Medicaid plans will reject the generic and prompt the pharmacy staff to use the brand product.  As additional generic suppliers enter the market and price falls, these Medicaid plans will align with generics and no longer prompt pharmacies to dispense brands.

Commercial payers and PBMs may follow a similar model for some high-profile brands where the rebates generated from the brand make economic sense to keep the brand on formulary post LOE. In this situation, commercial patients pay a generic copay either through the plan design or a copay buydown program sponsored by the pharmaceutical manufacturer. Otherwise, there would be no patient savings and only the plan sponsors would benefit.  We have also seen these programs when the LOE event is in the middle or end of the calendar year and the payer/PBM choose to maintain formulary position until the new plan year to minimize patient disruption.

These scenarios are still exceptions to the “generics first” mantra that payers/PBMs and pharmacies employ. Pharmacy workflow is disrupted when pharmacy staff select and submit a generic claim only to learn that they need to redo the prescription and submit the brand product. The next time you see a Medicaid or commercial payer maintain a brand on formulary post LOE, you now understand why these tactics are being used.


Published January 2018

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