Importance: Use of generics is generally understood as a cost-saving practice. However, pharmacy benefit managers have an incentive to place higher-priced generic drugs on insurers’ drug formularies to profit by creating a large difference between the price negotiated with pharmacies and the price paid by insurers (what is known as spread pricing).
Objective: To examine price differentials and savings potential between high-cost generics and corresponding therapeutic alternatives of same clinical value and lower cost.
Design, Setting, and Participants: This cross-sectional analysis examined the top 1000 generics in Colorado’s all-payer claims database (CO-APCD) in 2019. High-cost generics and lower-cost generic therapeutic alternatives of same clinical value constituted the study sample. Data were analyzed from January 2019 to December 2019.
Exposures: Generic drug prices measured by transaction prices, average wholesale price (AWP), and national drug acquisition average cost (NADAC).
Main Outcomes and Measures: Price differentials between the high-cost generics and the corresponding therapeutic alternatives. Levels of discounts and savings that could be achieved if the high-cost generics had been substituted by their therapeutic alternatives.
Results: This cross-sectional study of the top 1000 CO-APCD generics identified 45 high-cost products that had lower-cost therapeutic alternatives of same clinical value. Overall, high-cost generics were 15.6 times more expensive than their therapeutic alternatives (median values). If the lower-cost alternatives had been used, total spending would have been reduced from $7.5 million to $873 711, resulting in 88.3% savings. Most substitutions (28 of 45 [62.2]%) involved different dosage forms or different strengths of the same drug and provided mean (SD) discounts of 94.9% (3.8%) and 77.1% (19.9%), respectively.
Conclusions and Relevance: In this study, replacing high-cost generics with lower-cost alternatives of same clinical value would produce savings of nearly 90%. Plan sponsors should be aware that some generics are associated with higher spending and should periodically review the specific products driving their generic drug spending. Substitution of high-cost generics may provide a simple pathway to offer the same therapeutic benefit at lower cost to patients and insurers.
Socal, M.P., Cordeiro, T., Anderson, G.F., et al. Estimating savings opportunities from therapeutic substitutions of high-cost generic medications. (2022). JAMA Network Open, 5(11). https://doi.org/10.1001/jamanetworkopen.2022.39868