When a patent expires on brand-name pharmaceuticals, an economic opportunity is created for state Medicaid programs to save money on generic versions of the drug. As the generic drug becomes available, Medicaid programs adjust their drug payments in response to falling market prices. Those Medicaid programs that move quickly to adjust drug payments stand to gain the greatest benefit.
UC researchers Christina Kelton, a professor of economics at the Carl H. Lindner College of Business, and co-authors Lenisa Chang, assistant professor of economics at Lindner College of Business, and David Kreling, professor of pharmacy administration at the University of Wisconsin–Madison, examined the 2001 patent expiration of Prozac (fluoxetine), a widely prescribed antidepressant, and how quickly state programs shifted drug payments in response to availability of its generic version.
The research has been published in the July 2013 issue of Health Affairs, a leading journal of health policy thought and research, covering a range of multidisciplinary health issues, including Medicare, Medicaid, prescription drug coverage and costs, insurance reform and more.
Researchers, who analyzed data from 49 states and the District of Columbia, found large variances in states’ responses to generic availability. Chang says, “Arizona had a different Medicaid prescription program at the time so that was the only state missing from our study.”
Overall, they found that from 2001-2005 state Medicaid programs could have saved $220 million had they adjusted their reimbursement rates more quickly. Research noted that states took between two and 10 calendar quarters to reach 90 percent use of the generic version and four to eight quarters to achieve a 50 percent decrease in reimbursement per pill.
The authors recommended coordinating efforts among states on generic drug cost lists and adding a federal role in obtaining and disseminating price data.
“By coordinating their efforts, perhaps with federal help, states could gain access in a more timely way to market prices for generic drugs and take greater advantage of the savings that those drugs offer,” says Kelton.