Half Of 1st Approved Generics Do Not Launch Due To Part D Formulary Obstacles, AAM Says
Executive Summary
Medicare Part D program should place generics on tiers separate from brand drugs and create a dedicated tier for specialty generics and biosimilars, AAM advocates in white paper.
The Association for Accessible Medicines has gathered new data to bolster its argument that Medicare Part D plans should place generics on different formulary tiers than higher-priced brand drugs. It cites recent findings that fewer than half of first generics approved by the US Food and Drug Administration since 2016 are commercially available and of these, only about half were included on Part D formularies.
AAM released a white paper, "Access Denied: Why New Generics Are Not Reaching America's Seniors," on 23 September. It reports that first generics (the first competitor to a brand) are covered on formulary approximately 10 to 25% of the time in the first year of launch, 25 to 35% in the second year after launch and 55 to 65% in the third year after launch.
"Once they are added to formularies, first generics are routinely placed on expensive brand drug tiers with higher patient copays, rather than on generic tiers with lower cost-sharing," the paper states. "As a result, seniors do not benefit from lower prices and lower out-of-pocket costs, and taxpayers continue to pay for high-priced brand drugs."
AAM notes that historically, plan formularies would automatically cover a new generic medicine on a generic tier given the significant price discount provided by generic competition. But it says that in 2017, the Centers for Medicare and Medicaid Services Part D formulary guidelines started to allow Part D plans to move generic drugs from a generic tier onto a higher tier.
The association has sought to get CMS to change this policy. AAM funded an Avalere Health study of generic drug coverage in part D plans. The analysis, released last year, found that between 2011 and 2015, out-of-pocket costs for some patients who take generic drugs increased by $6.2bn. Avalere also found a trend toward placing generics on higher cost sharing tiers.
The study in part prompted CMS to seek public comment on whether plans are increasingly moving generics to higher cost sharing tiers. But in its final Medicare Part D Call Letter for 2020, CMS said it would not prohibit plan sponsors from placing generics on brand formulary tiers and brand drugs on generics formulary tiers or eliminate the non-preferred drug tier." (Also see "Part D Plans Undercut Generics In Favor Of Brands Only In 'Limited Instances' – CMS" - Pink Sheet, 2 Apr, 2019.)
Generics Hurt By 'Rebate Trap' And Coverage Gap
In its new white paper, AAM asserts that while FDA has approved a record number of generics, there are also record numbers of approved generics not launching. It cites IQVIA data that nearly 29% of generics approved between 2016 and 2018 did not launch. And as of May 2019, only 20% (5 of 25) of 2019 first generic approvals were commercially available. (See chart at end of story.)
AAM calls on policymakers to update the Part D program to ensure that first generics are covered at launch. It urges them to place all generic products on tiers designated as generic and separate from higher-priced brand drugs and to create a dedicated specialty tier to allow for differentiation among specialty brands versus generics and biosimilar medicines. AAM contends that seniors could save more than $4bn annually if these changes were adopted.
AAM says the current poor coverage of generics is due to two structural features of Part D: the availability of brand drug rebates, and the design of the Part D benefit.
The paper contends that the use of "rebate traps," in which a brand manufacturer threatens to revoke rebates it provides to the Part D plan for its product if the plan covers the lower-priced generic, forces the plan to either block the generic from the formulary or forego rebates for the brand product.
The loss of significant rebate dollars may make it economically infeasible for a payer to cover a generic, the paper states. "This, in turn, leads a Part D plan to keep the first generic drug off its formulary, preventing patients from accessing the lower-priced product."
Similarly, AAM says the current structure of the Medicare Part D coverage gap (the "donut hole") can encourage payers to cover higher cost brands instead of their generic competition. Under the Medicare Part D Coverage Gap Discount Program created in 2009, brand drug manufacturers provided a 50% discount to beneficiaries in the coverage gap portion of the Part D benefit. The discount was increased to 70% in 2018.
The paper says the Medicare Payment Advisory Commission (MedPAC) and other independent observers have noted that this can result in a beneficiary moving through the coverage gap and into the catastrophic phase of the benefit more quickly, thus reducing the Part D plan's financial liabilities and encouraging plans to prefer higher-cost drugs over lower-priced generics.
AAM Senior VP and General Counsel Jeffrey Francer was asked about Medicare drug plans shifting generics to brand tiers with higher co-pays at a congressional hearing last week. Testifying before the House Energy and Commerce Subcommittee on Consumer Protection and Commerce, Francer said the generic industry had been surprised by this shift, which has meant it can be more expensive for patients at the pharmacy counter to get the generic rather than the brand. (Also see "Drug Product Hopping Bill Should Specify Anti-Competitive 'Window', Congress Advised" - Pink Sheet, 19 Sep, 2019.)