Why Are Medicare Part D Generics Costing More Than Brand-Name Drugs?

Medicare Part D, which is the prescription drug benefit program part to Medicare, was
designed to make medications more affordable for seniors and other beneficiaries.
Traditionally, generic drugs are usually known to be a cost-saving alternative to brand-
name medications. However, a perplexing trend has emerged: in some cases, the out-
of-pocket costs for generic drugs under Medicare Part D are coming up higher than their
brand-name counterparts. This phenomenon is leaving beneficiaries confused and
raising questions about how the system works.

Understanding Medicare Part D Pricing
Medicare Part D coverage is provided through private insurance companies that
contract with the federal government. These plans negotiate prices with drug
manufacturers and determine formularies based on a tier system that categorizes
medications based on their cost and preferred status. Drugs in lower tiers, like generics,
typically have lower co-pays, while brand-name drugs are placed in higher tiers with
higher costs.
However, the dynamics of rebates, pricing agreements, and tier placement can
sometimes lead to unexpected outcomes.

Why Generics Can Cost More Than Brand-Name Drugs
Here are some key reasons why this counterintuitive pricing occurs:

1. Rebate System and Brand-Name Discounts
   Brand-name drug manufacturers often provide rebates to Part D plans to encourage
   their medications’ inclusion in formularies. These rebates lower the overall cost for
   insurers, which can translate to lower out-of-pocket costs for beneficiaries, especially if
   the drug is placed in a preferred tier.
   Generics, on the other hand, are usually less expensive at the wholesale level and do
   not come with large rebates. Without these rebates, Part D plans may place generics in
   non-preferred tiers, leading to higher co-pays or coinsurance for patients.
2. Tier Placement Policies

The placement of a drug on a formulary tier is a key factor in determining its cost. In
some cases, plans may place certain brand-name drugs in a lower-cost tier to
encourage their use due to rebate incentives, while generics might be assigned to
higher-cost tiers. This can result in patients paying more for generics than for the brand-
name option.

3. Catastrophic Coverage Thresholds
   Out-of-Pocket Cap for Medicare Part D: Starting in 2025, Medicare Part D
   beneficiaries will have an annual out-of-pocket maximum of $2,000 for prescription drug
   costs. This means once someone spends $2,000 on covered drugs, their drug costs for
   the rest of the year will be covered. The only stipulation to this is that all of your drugs
   must be in the formulary of the Part D plan you are enrolled in. in.
4. Plan Variability
   Each Medicare Part D plan is structured differently, with varying formularies and cost-
   sharing requirements. Some plans might not prioritize generic cost savings due to their
   rebate agreements or specific pricing strategies, leading to disparities in pricing.

Implications for Beneficiaries
The unintended consequence of these pricing dynamics is that beneficiaries may end
up paying more for what should be cost-effective generic drugs. This can lead to
financial strain, medication non-adherence, and frustration among patients trying to
manage their healthcare costs.

What should you do to protect yourself and manage medication costs:

1. Shop for your drug plans every year: Medicare beneficiaries should shop with their
   Medicare broker or on Medicare.gov every year starting October 15 th , to see what
   changes are expected in their current plan verses other plans offered that year.
2. Explore Medication rebate programs: Policyholders should look into rebate
   programs that are available for those on Medicare Part D plans. These are applied for
   annually and will need provider signatures to verify your dose and quantity.
3. Search plan specifics for costs of generics vs. name brands: discuss with your
   physician the costs of your medications and communicate if name brand are cheaper
   than generic.
4. Educate yourself: Patients should be educated on comparing Part D plans during
   open enrollment to select options