Medicare Part D misses $3.4B in savings from excluded generic coverage

The CMS and Medicare beneficiaries could have saved more than $3 billion over four years if the Medicare Part D program covered more generic prescriptions, a new study found.

The study, published in JAMA Internal Medicine on Tuesday, found a potential $3.4 billion in Medicare Part D savings between 2012 and 2015 if the CMS required generic substitutes for 62 brand-name drugs that weren't covered by the two largest pharmacy benefit managers, CVS or Express Scripts.

Although formulary-excluded drugs represent only a small number of brand-name medications that have adequate lower-cost generic substitutes, and the potential 2015 savings represented only 1% of the CMS' total prescription drug spending, there are clear opportunities to reduce costs using strategies already in place at large PBMs, according to the study. More drugs are excluded each year, and the savings could add up if more generics are used, said Alex Egilman, the lead author and post-graduate associate at Yale University.

"CVS' formulary exclusion list only began in 2012 with 19 drugs and it has gotten a lot bigger — this is only the tip of the iceberg," he said.

PBMs can use placement on drug formularies as a negotiating tactic with drug manufacturers, which will offer large rebates to ensure health plan coverage and keep out-of-pocket costs lower.

PBMs get paid in part based on the "spread" — the difference between the high list price set by drug companies and the actual price paid by PBMs. They say they pass most of the rebates onto the customer, but insurers, providers and customers have to take them on their word because those details aren't revealed.

"The villains are information—or rather lack thereof—and cost share," said Michael Rea, CEO of Rx Savings Solutions, a company that sells software to health insurers and self-insured employers to help them lower their drug costs. "Information about all therapeutic choices that can be used to manage a medical condition are often not clear for the patient or prescriber because each plan setup is different."

Librax, a gastrointestinal drug which is developed by the drug manufacturer Valeant Pharmaceuticals, is one on the drugs on Express Scripts' 2018 formulary exclusion list. Express Scripts members would either have to pay the full $4,000 cost per bottle of the brand-name drug or around $200 for the generic version.

But consumers may be cut off from generic forms of Librax, which have about 95% of the market, due to an unexpected regulatory change, according to Virtus Pharmaceuticals, a generic drug manufacturer that develops a generic alternative to Librax.

The Food and Drug Administration reversed its 40-year position in 2016, announcing that Librax had actually been approved for a full new drug application on Sept. 1, 1966, which could give Valeant market exclusivity and drive out generic competitors, Virtus executives said.

From 1975 to 2016, the FDA held that Librax was part of a Drug Efficacy Study Implementation hearing, which allowed generic competition. During that time, drug costs were low and multiple treatment options were available to patients, Virtus said. But Valeant has erroneously convinced the FDA into changing its long-held position to effectively give the company a monopoly, Virtus CEO Tina Guilder said.

"This directly contradicts what the FDA has said over last several months in regard to improving generic competition," she said.

Virtus filed an internal agency review appeal with the FDA in July that is under review.