Pricing and Reimbursement in the US - Non-LIS Beneficiaries Not Covered by Medicare Coverage Gap to Gain from Reduction in Out-of-Pocket Expenditure for Generic Drugs

Additional Information

Focus Shifting Towards Generic Drugs

The global pharmaceutical market is valued at approximately $850 billion, of which the US market is valued at over $300 billion. Sales of generic drugs totaled $43 billion in 2010, in the US. Of all the prescriptions dispensed, generics constituted a majority share of 75% in 2010, in the US. The US President has recently pledged to accelerate the availability of generic drugs in the market and ban pay-for-delay agreements. The availability of generic drugs will be enhanced by preventing companies to enter anti-competitive agreements. The proposal made by the US government accelerates access to affordable generic drugs by granting brand biologic manufacturers seven years of exclusivity replacing the 12 years, while retaining appropriate incentives for research and development (R&D) for the innovation of breakthrough products.

It has been observed that as more generic manufacturers produce a certain drug, prices of the generic drug falls significantly. This reduction in average price of generic drugs is observed every year. The retail price index for generic drugs decreased at an average annual rate of -1.1% over the past two years. Moreover, discounts on generic drugs will increase from 2011 to 2020 as the generic drug costs paid out-of-pocket by non-Low-Income Subsidy (LIS) beneficiaries in the coverage gap will gradually reduce from 93% in 2011 to 25% in 2020. The majority cost sharing will be undertaken by the Medicare Part D (MPD) plan as it will pay 75% of the generic drug costs by 2020.

Increasing Healthcare Expenditures has Improved Life Expectancy of Americans

Healthcare expenditure has increased gradually from 13.7% of GDP in 1995 to 17.4% of GDP in 2009, according to the Organization for Economic Co-operation and Development (OECD). Per capita spending on healthcare has also improved, from $4,703 in 2000 to $7,410 in 2009, in purchasing power parity (PPP) terms. The increased spending towards healthcare has led to an improved life expectancy. Americans had a life expectancy of 75.7 years at birth in 1995, which has increased to 79 years with the increase in healthcare spending.

Huge Deficits Provoking Cuts in Rebates

The Affordable Care Act (ACA) has been implemented to reduce federal deficits by approximately $230 billion over next decade by delivering better healthcare at lesser costs; provisions to fight waste, fraud and abuse; rewards for high quality care; and innovative healthcare delivery systems. In addition, a proposal to cut $320 billion from US health programs was announced by the US President Barack Obama on September 19, 2011.

Medicare Part B reimburses drugs and biologics medicines indicated for cancer and other serious diseases. In order to reduce the US debt limits, $3 billion in cuts towards payments for Part B drugs has been proposed by the government. Medicare Part B reimbursement had been reformed earlier in 2003 as part of Medicare Modernization Act, in which reimbursement for drugs and biologicals covered under Part B had been reduced significantly. Enacting further cuts in payments to the Medicare Average Sales Price (ASP) system, which includes actual prices paid by physicians and other drug purchasers, may hinder Part B-related healthcare services.