Does the offer of free prescriptions increase generic prescribing?

To test if offering zero generic co-pays for oral antidiabetic drugs (OADs) and statins increases generic dispensing for low-income subsidy (LIS) recipients with diabetes enrolled in Medicare Part D.

We analyzed a natural experiment in which LIS recipients were randomized to Part D plans in 2008. Some plans placed selected generic OADs and statins on zero co-pay tiers whereas others did not. Randomization eliminated selection effects which could bias the study findings.

We analyzed a 5% random sample of Medicare beneficiaries with diabetes from the Chronic Condition Data Warehouse using Part D claims, formulary provisions, and co-pay tiers together with a special file prepared by CMS that identified all randomly assigned LIS recipients in 2008. We calculated proportions using generic drugs in the 2 classes and annual days' supply among users in plans with and without zero co-pay tiers for the country as a whole and California (where zero co-pay plans were particularly popular).

We found that the demand for generic OADs was not significantly different in plans with and without zero co-pay tiers. By contrast, a large difference was observed in the percent of LIS recipients using generic statins in plans with zero co-pay tiers (61.4% vs 54.6%; P <.01). However, the difference disappeared once we controlled for formulary restrictions on the most popular brand statin at the time (Lipitor).

This cautionary tale suggests that policy makers should give greater consideration to formulary provisions when evaluating the effects of free generics in value-based insurance designs.