Study: Brand Name Drugs Drive Up Medicare Spending

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.

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.”