Medicaid Wastes $329 Million a Year on Brand Drugs

Medicaid Wastes $329 Million a Year on Brand Drugs

Medicaid squandered $329 million in a single year by paying for costly brand-name drugs when much cheaper generic versions were available.

That’s the troubling disclosure from Alex Brill of the American Enterprise Institute, who compiled an extensive study of Medicaid spending in 2009.

Given the huge federal and state budget deficits “and the added burden of recent healthcare reform legislation that will add 16 million new enrollees to Medicaid rolls by 2019, there is a clear and obvious need to identify potential savings opportunities to address budget pressures, particularly as they relate to healthcare spending,” Brill observes.

Brill looked at 20 medications that are available as both a brand-name product and a “therapeutically equivalent” generic one. Total Medicaid spending on these medications was about $1.5 billion in 2009.

“The analysis identifies $329 million of overspending as a result of underutilization of the less costly (generic) and overutilization of the more costly (brand) versions of these multi‐source products,” Brill discloses in his report, released on March 28.

“Because Medicaid is a joint federal‐state program, savings from addressing this problem would accrue to both states and the federal government.”

The average price for a generic-filled prescription among private payers that year was $39.73, while brand-name drugs averaged $155.45.

Brill estimates that the overspending for just one drug, the antipsychotic Risperdal, was more than $60 million that year, while the average waste per prescription for the antipsychotic Clorazil was $232.

On the state level, the greatest amount of unnecessary spending was in California, $102 million, followed by Texas at $31 million. Per enrollee, the most wasteful states were Vermont and Iowa, which unnecessarily spent $31.43 per enrollee.

In contrast, Hawaii overspent just 12 cents per enrollee.

Brill points out that reining in unnecessary spending is particularly important now because many widely used brand-name drugs will lose patent protection in 2011 and 2012 and face competition from cheaper generic products. “Future overspending in this program [will likely be] even greater if new policies are not promptly adopted,” he states.

His analysis looks at 10 such patented drugs, including the popular cholesterol drug Lipitor, and projects that overspending for the branded versions will range from $289 million to $433 million.

Brill’s conclusion: “Continued wasteful spending in the Medicaid drug program is a problem requiring policymakers’ prompt attention.”

P.S.: Factoring in Medicare as well, Brill cites a 2010 report by the Congressional Budget Office estimating that Medicare’s overspending on brand-name drugs was $900 million in 2007.