Report: Generic Drug Spending Rose Due to Formulary Placement

An Avalere review finds that the proportion of generic drugs covered on lower tiers (with generally lower out-of-pocket costs for patients) in Part D plans have decreased.

Patient out-of-pocket (OOP) spending on generic drugs in Medicare Part D skyrocketed 135% from 2011 to 2019, according to a new report. Patients spent $8.5 billion on older generic drugs and $20 billion in 2019, an increase of $11.5 billion, due to generics being placed on higher tiers, Avalere found in a new analysis funded by the Association for Accessible Medicine (AAM).

The older generic drugs in question include only product on the market in 2011, 2015, and 2019. Avalere said it limited the analysis to this cohort to control for changes resulting from the launch of additional generics over time.

While there was a 21% hike in the total number of prescriptions, the increase was less than the increase in total out-of-pocket spending, Avalere said.

“Many patients are spending far more than necessary on generic drugs. This new study….is further evidence of the financial burden patients face from high health plan copays for generic drugs,” Dan Leonard, president and CEO of AAM, said in a statement.

The significant spending increase was “overwhelmingly driven by health plan and PBM decisions to place generics on non-generic formulary tiers, even as the prices for those generics declined,” Leonard said. “It is vital that policymakers recognize the systemic drug pricing manipulation at work and help ensure that patients benefit from the full value of lower generic prices.”

Consistent with prior findings, the analysis found that the percentage of generic drugs on Tier 1 (usually preferred generic) decreased from the base year to 2019, while the percentage of generic drugs on Tier 3 (usually preferred brand) and Tier 4 (usually non-preferred drug) increased. The decline in the percentage of generics on Tier 1 was greatest between the years 2011 and 2015, where placement decreased from 72.6% to 19.6%.

In general, the move from Tier 1 to Tier 2 is “not noteworthy,” Sean Dickson, JD, MPH, director of health policy at West Health Policy Center, told Formulary Watch, because as Avalere notes, plans generally began dividing generics into two tiers in 2015.

“However, the move to higher tiers may actually reflect a de-preferring of the therapy overall or price increases in the generic market from a decrease in manufacturers or use of the drug,” Dickson noted. “Generics that were on the market in 2011 are likely to be quite old therapies at this point and some of them may have fallen out of therapeutic use in favor of new treatments, so the tiering strategy is encouraging better therapies.”

A reduction in use of the older generics overall could have reduced the size of the market, which could result in fewer generic manufacturers and higher prices, which plans are passing onto patients via a move to higher cost-sharing, Dickson said. “This is consistent with the literature showing price increases as the number of generic manufacturers decreases.”