Patient and Payer Incentives to Use Patented Brand-Name Drugs vs Authorized Generic Drugs in Medicare Part D

In response to scrutiny over high drug prices, manufacturers of insulin and direct-acting antiviral agents for treating hepatitis C have recently introduced authorized generic alternatives to their patented brand-name products. These authorized generic drugs have list prices at least 50% lower than the list price of the brand-name drugs, which should result in savings to patients. However, it is unclear whether these authorized generic drugs are offered on Medicare Part D formularies because they may not provide savings to plans or Medicare.

To assess Medicare Part D formulary coverage for 4 brand-name formulations of insulin and direct-acting antiviral agents and their authorized generic formulations.

This cross-sectional study used Medicare Prescription Drug Plan Formulary and Pricing Information Files from quarter 3 of 2020 and Medicare Part D plan enrollment for September 2020. Four patented brand-name drugs (sofosbuvir and velpatasvir fixed-dose combination tablets [Epclusa], ledipasvir and sofosbuvir tablets [Harvoni], insulin lispro [Humalog], and insulin aspart [Novolog]) and their authorized generic formulations for all Part D stand-alone prescription drug plans (n = 959) and Medicare Advantage prescription drug plans (n = 3148) were studied.

Beneficiary-weighted formulary coverage of brand-name and authorized generic products; beneficiary out-of-pocket costs; and prerebate plan, manufacturer, and Medicare spending on brand-name and authorized generic products.

In quarter 3 of 2020, 97% of beneficiaries were in plans that covered brand-name drugs only or both brand-name and authorized generic drugs; approximately 3% were in plans that covered authorized generic drugs only. Observed authorized generic drug list prices were 67%, 62%, and 50% lower than list prices for Epclusa, Harvoni, and each brand-name insulin product, respectively. Medicare beneficiaries using authorized generic drugs could save $270 per year for 12 vials of Humalog and $2974 for a full course of Harvoni. Plans, however, have limited incentives to encourage authorized generic drug use because rebates for brands likely exceed savings available with authorized generic drugs, particularly for beneficiaries with spending that reaches the Medicare Part D coverage gap.

The results of this cross-sectional study suggest that authorized generic drugs for insulin and direct-acting antiviral agents may lower out-of-pocket spending for patients but are unlikely to provide savings for Part D plans or Medicare. Instead, these drugs allow manufacturers to offer products at a lower list price without materially lowering net prices or profits.