Generics Part 2
October 8, 2011DrHovanesian No Comments »Generics, Part 2: The Real Cost of Generics — The hole in Medicare’s donut is bigger than it used to be.
This is the second in a series of blog posts about changing trends in the use of perioperative medications in cataract surgery.
For decades, physicians have become accustomed to pharmacies substituting generic medications for the brand name products that they prescribe. In general, this substitution saves money and does not present any greater side effects or loss of efficacy than the prescribed brand name product. There are notable exceptions in which generic substitution is not advisable, including thyroid hormone replacement medications and others. But most of the time, a generic medication is essentially equivalent to the brand name product. In treating eye disease with topical medications, however, we have a special pharmacologic environment — one in which the medicine (and its vehicle and all incipients) is placed directly on the very sensitive end organ, the eye. We will discuss more on the efficacy and side effects of generic substitutes in eye care in the last blog post in this series.
What about the cost of generics? Frequently, well-intentioned doctors prescribe generics for patients who are paying cash out of pocket or who are in the Medicare Part D donut hole — the period of time for each Medicare beneficiary where prescription coverage is theoretically absent. For these patients, generics are cheaper, right?
Not so fast.
A patient recently brought to my attention the following facts about what happens with generic vs. brand name medications for most Medicare patients in the so-called donut hole*:
- The donut hole will be phased out between 2010 and 2020 in a series of steps. In 2011, eligible Medicare beneficiaries in the donut hole will receive a 50% discount at the pharmacy on brand name drugs and a 7% discount on “equivalent” generics.
- The full Medicare-negotiated price of brand name products (not the 50% discount) will be counted toward the patient’s true out-of-pocket costs, which must reach $2,850 before the patient exits the donut hole.
- For generics, the actual amount paid for the generic, which is 93% of negotiated price, will apply toward the deductible.
So let’s say brand name Acme Pain, a prescription medicine, costs $200/month, and a generic is available for 70% less than the cost of Acme Pain, or $60/month. (According to the National Association of Chain Drug Stores, generic medications on average cost 30% to 50% less than their brand name counterparts, but I am assuming a much bigger 70% discount.) In the donut hole, a patient buying the brand name medication would get a 50% discount (per the rules above), or $100/month for this brand name medication. A patient buying the generic would pay 7% less per the same rules, or $55.80. There’s a savings of $44.20 for the generic, right? At first yes, but only $55.80 applies to the patient’s deductible with the generic vs. the full $100 with the brand name product. In other words, the $44.20 “saved” must now be spent before the patient gets past the $2,850 out-of-pocket cost to exit the donut hole.
Generics? Some savings.
In the old days when only efficacy and side effects mattered, it was easy to make decisions for patients’ best medication choices. Now, however, the increasingly confusing element of cost has entered into the equation, and the old “white knight” of generic medications does not appear always to be the good guy after all.
*This is not a complete description of Medicare Part D rules. Please consult the CMS website for full details.
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