Firm- and drug-specific patterns of generic drug payments by US medicaid programs: 1991-2008

The entry of generic drugs into markets previously monopolized by patented, branded drugs often represents large potential savings for healthcare payers in the USA.

Our objectives were to describe and explain the trends in drug reimbursement by public Medicaid programmes post-generic entry for as many drug markets and for as long a time period as possible.

The data were the Medicaid State Drug Utilization Data maintained by the Centers for Medicare and Medicaid Services. Quarterly utilization and expenditure data from 1991 to 2008 were extracted for 83 drugs, produced by 229 firms, that experienced initial generic entry between 1992 and 2004. A relative 'price' for a specific drug, firm and quarter was constructed as Medicaid reimbursement per unit (e.g. tablet, capsule or vial) divided by average reimbursement per unit for the branded drug the year before entry. Fixed-effects models controlling for time-, firm- and drug-specific differences were estimated to explain reimbursement.

Twelve quarters after generic entry, 18 % of drugs had average per-unit reimbursement less than 50 % of the original branded-drug reimbursement. For each additional firm manufacturing the drug, reimbursement per unit, relative to the pre-generic-entry branded-drug reimbursement, was estimated to fall by 17 (p < 0.01) and 3 (p < 0.01) percentage points for generic and branded-drug companies, respectively. Each additional quarter post-generic entry brought a 2 (p < 0.01) percentage point drop in relative reimbursement.

State Medicaid programmes generally have been able to obtain relief from high drug prices following patent expirations for many branded-drug medications by adjusting reimbursement following the expanded competition in the pharmaceutical market.