ALEXANDRIA, Va. — The whole point of providing a prescription drug benefit in any health plan is to make sure that patients have access to the right medicines to treat their specific illnesses.
Why, then, would some analysts recommend that state officials limit the prescription drugs available through Medicaid just to generic drugs when evidence shows those may not be the right drugs for individual patients?
Physicians and patients, especially those taking medications for chronic conditions, know that older generic drugs often don’t work as well for them as newer, brand name drugs.
The motivation, of course, is costs. Alex Brill, a tax policy adviser to President Obama's 2010 Fiscal Commission, recently wrote a paper claiming that “Medicaid overspent by an estimated $329 million in 2009 by reimbursing for more costly brand drugs rather than lower-cost, therapeutically equivalent generics.”
An economics adviser to a Washington consulting firm and a fellow at the American Enterprise Institute, Brill examined 20 popular drugs for which newer brand-name pharmaceuticals and older generics both are available. But he ignored what should have been his top priority — which category of drug actually works best for individual patients and would save money in the long run.
Generics generally cost less than branded pharmaceuticals because generic manufacturers do not have to build the cost of research and development into the prices of their products. They get access to the original intellectual property at no cost because the drug patents already have expired.
But limiting drug choices to generics can force patients to take medicines that may not be the right ones for their particular maladies. And restricting drugs just to generics is a short-sighted policy that not only interferes with patient care but likely will lead to higher overall spending in the long run.
Frank Lichtenberg, a Professor of Business at Columbia University's Graduate School of Business and a prize-winning economics researcher, has documented the flaws in Brill’s silo approach to healthcare.
“Medical innovations — new drugs, devices, and diagnostics — are often more expensive than older versions, but they may also embody better science,” Lichtenberg writes in a paper published by the prestigious Manhattan Institute. “And this new know-how may help Americans who might otherwise become disabled from illness or injury to stay in the work force longer.”
Lichtenberg examined how access to one type of medical innovation — newer prescription drugs — may have affected disability rates in the U.S. working-age population between 1995 and 2004.
In a carefully constructed study, he found that states whose Medicaid formularies contained the oldest medicines had higher rates of disability than states that allowed access to newer drugs.
Had doctors and patients not had access to newer drugs, Lichtenberg estimated that “disability rolls would have increased by an additional 30 percent. That means that Social Security would have to provide some 418,000 disabled Americans with $4.5 billion in additional support.
Lichtenberg's findings directly contradict the Brill study, which concluded that allowing patients access only to older, outmoded drugs saves money.
Earlier research by Lichtenberg demonstrated that payers can save $8 in other health costs for every $1 they spend on newer drugs by avoiding more expensive medical interventions and hospitalizations.
Finding real value in healthcare "won’t be as simple as checking the price tag,” Lichtenberg observes.
Patients with epilepsy and mental illness are particularly at risk under an “only generics policy” because they may respond well to one drug but not to another, even though the drugs are in the same therapeutic category.
The main point is obvious: On-the-scene doctors should be making the decisions on which medicine works best for their patients rather than government officials in state capitals and Washington, D.C.
In such crucial matters, the price of a drug is a short-sighted marker for the overall cost of patient care. Cheaper may not be better – or less expensive – after all.
