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Study: Brand Name Drugs Drive Up Medicare Spending

By Ankita Rao

June 11th, 2013, 5:59 AM

A new study suggests that cash-strapped Medicare missed an opportunity to save more than $1 billion by not addressing the varying costs and use of prescription drugs.

Photo by Erin DeMay via Flickr

Comparing Medicare enrollees and those on the U.S. Department of Veterans Affairs (VA) health plan, researchers found that Medicare beneficiaries were up to three times more likely than VA patients to choose higher-cost brand name drugs over generic brands, according to the Annals of Internal Medicine report.

“The main issue, and the only way to fix this, is to change what physicians are doing,” said Dr. Walid Gellad, a lead author and internist with the VA Pittsburgh Healthcare System and the University of Pittsburgh.

Physicians in the VA system follow an approval process that requires them to try the generic drug before they prescribe a patient the brand-named version. The system also limits their providers’ interactions with pharmaceutical representatives, which Gellad said can alter the way a doctor chooses to prescribe certain drugs.

Researchers compared diabetic patients of similar ages – about 75 years old – and health outcomes. They calculated that if Medicare Part D followed the VA system, drug spending would have been $1.4 billion less in 2008. If the VA had adopted Medicare practices, on the other hand, its spending would increase by $108 million.

The findings echo a larger conversation among policymakers about pharmaceutical costs, since brand-named versions can cost significantly more than their generic counterpart. Both nonprofit patient assistance programs, like NeedyMeds, and government legislation, like the Physician Payment Sunshine Act, have sought to tackle the high costs of prescription drugs and physicians’ prescribing practices.

“There is not too much transparency when it comes to drug pricing,” said David Lipschutz, an attorney at the Center for Medicare Advocacy. “People focus on out-of-pocket expenses.”

He pointed out that lawmakers have offered many proposals to deal with prescription drugs, with different methods to control the costs through both market competition and changes in the patient’s copay.

Lipschutz said the new study would help inform a debate, even if data was culled from two “very different systems with big structural differences.”

Meanwhile, Gellad called the results of his study “startling” and said he hopes it will spur action as lawmakers seek ways to slow Medicare spending.

“It’s an easy solution,” he said. “You don’t have to change a law or do anything special to decrease costs – you just have to change the kind of drugs people are using.”

This article was produced by Kaiser Health News with support from The SCAN Foundation.

9 Responses to “Study: Brand Name Drugs Drive Up Medicare Spending”

  1. Peter Metcalf says:

    We partly have ex Republican Biily Tauzin,( who afterwards went to work for Pharma) the Bush administration, and all those who voted not to allow the government to negotiate drug prices with the pharmaceutical companies when Medicare Part D was introduced. to blame for this . Has anyone looked at the profits of the pharmaceutical companies recently. In addition, allowing the drug companies to adverise their products (like Cialis) drives up demand, costs. and of course profits.

  2. killroy71 says:

    A billion here, a billion there, pretty soon you’re talking about real money.

  3. Gene Dameron says:

    This does not speak to outcomes. Accordingly, any savings associated with the differences in medications may have been offset by hospitalizations and the exacerbation of the disease process inadequately treated?

  4. Jon says:

    If I was a diabetic I certainly wouldn’t want the “older” medications that come with worsening side effects, I’d want the latest medication and I would not want the government telling which I have access to. Also, everyone targets pharma but reality is, branded products make up about 20% of the market and branded manufactured are the ones doing all the R&D. It’s the generic companies that steal and copy the drug only to make huge profit margins. For every one branded product that is successful that makes maybe 500million, that company lost 4 billion on the 5 products that failed to make it to market.

  5. Joan Sanfield says:

    Who had better A1c reductions?

  6. Lenny says:

    For an interesting book on the topic, do a search for this “The Truth About the Drug Companies: How They Deceive Us and What to Do About It”.

  7. Bob says:

    Sadly, the missing link in this discussion is patient outcomes. This is only a single cost study and lends no weight to a patients’ medical status or medical cost to see how the total cost or health of the patient is actually impacted.

  8. Often, ‘newer’ drugs offer little benefit over earlier ones. Indeed, a newer class of diabetes medications may increase the likelihood of cancer, making the drugs less desirable than earlier ones. The belief that newer medications would result in less hospitalizations, side-effects, etc., remains to be established. Researchers in different areas of health care, as well as in marketing, have demonstrated that buyers often make irrational choices. Often, they do not have the requisite knowledge to make informed choices or they allow too many non-pertinent concepts to cloud their judgment. An excellent example is seniors complaining about their ability to pay for higher-priced medications while requesting them??? I have no problem with Medicare requiring a course of older or generic medications prior to allowing newer brand-names as it would be fiscally responsible. Alternatively, I would have no problem with higher co-pays for brand-name medications if one decided to forgo trials of other medications first. (P.S. I am a senior on Medicare)

  9. Susan Rhodus, R.Ph. says:

    As a pharmacist, I hate these type of studies. To reiterate, where are the outcomes for these patients. With the exception of metformin, the older diabetic drugs cause major hypoglycemia in older adults. How many of the VA patients experienced a hypoglycemic attack requiring hospitalization? If you look at the big picture and explore healthcare costs, medications make up a small amount of the dollars whether it is generic or brand named products. The big cost is hospitalization. How many patients either stop taking their medication or are not on the right medication and end up in the hospital? Looking at drug costs in a silo never works – the entire cost for these patients needs to be examined.

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