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Canary in a Coal Mine’: Expensive Brand-Name Drugs Thrive in Medicare Part D Despite Generic Competition, Driving Up Costs

Specialty generic drugs struggled to gain traction in Medicare Part D, even though they are markedly cheaper, exposing distortions that contribute to increased health care spending. This trend is expected to worsen, but Part D reform would fix the problem.

Pills at a pharmacy
Rich Pedroncelli/The Associated Press

Some specialty brand-name drugs continue to dominate Medicare Part D sales — even though cheaper generic versions are available and have been for quite some time — exposing an outdated design in the byzantine U.S. drug pricing system that underscores the need for reforming the way Medicare pays for prescription drugs, according to a new analysis. 

Using a multiple sclerosis drug as a case study, researchers with 46Brooklyn found that Medicare Part D’s manufacturer discounts and complex cost-sharing has resulted in a lopsided market that defies logic and tilts in favor of more expensive, brand-name drugs. This perverse incentive creates a cost advantage for beneficiaries and Part D plans while raising costs for the federal government, leaving taxpayers on the hook for the added expense.

These distortions explain in part why Medicare’s spending on drugs continues to increase every year and adds to the evidence that national drug pricing reform is necessary to help the U.S. restore balance to the drug market, make prescription drugs more affordable and accessible, and lower national spending on health care. 

46Brooklyn’s report on Copaxone is a canary in the coal mine” — a warning of a troubling trend on the horizon, the researchers said. As more brand-name specialty drugs lose their patent exclusivity in the next decade and specialty generics come to market, they may similarly struggle to gain traction in Medicare Part D — even if they are cheaper — dampening optimism that generic competition alone could lead to much-needed cost savings for Medicare Part D and bolstering the case for broader reform of the Part D program. 

Copaxone is a so-called zombie brand” — a brand-name drug that continues to reap huge sales despite losing its patent and market exclusivity.

Manufactured by Teva, copaxone was first approved in 1996 and held on to its exclusivity for nearly two decades until 2015 when the first generic competitor entered the market, quickly followed by a second generic drug two years later.

Yet, despite generic competition, copaxone has maintained its grip over the market, capturing 82 percent of sales from Medicare Part D in 2018, or about $1.2 billion in sales.

Why? Fundamental flaws inherent in Medicare Part D benefit design work against specialty generic drugs, including warped incentives introduced by the program’s complicated cost-sharing methodology.

When Medicare Part D was first introduced in 2006, a patient was on the hook for 100 percent of drug costs until they met the deductible, then the cost-sharing shifted to 25 percent for the patient and 75 percent for the health plan, until they reached the so-called doughnut hole” — a coverage gap that, in 2020, kicks in at $4,020 of total drug spend.

Then a patient was on the hook for 100 percent of the costs again until they reach catastrophic spending levels, and their share is once again reduced to 5 percent with no cap on what they will pay. Once a patient reaches catastrophic coverage, Medicare pays for 80 percent of the drug costs for the rest of the year.

The doughnut hole was deeply unpopular, and in subsequent legislation, Congress phased out and ultimately eliminated the doughnut hole by requiring manufacturers to pay a discount for brand-name drugs during this phase of the benefit. Patients remained on the hook for 25 percent of their costs once they reach their deductibles. (Cost-sharing drops to 5 percent for patients once they reach catastrophic spending levels, or $6,350, and Medicare continues to pay 80 percent during the catastrophic phase).

But in closing the doughnut hole, the policy inadvertently gave an advantage to more expensive brand-name drugs by creating a brand-name drug superhighway” — applying the manufacturer’s discount as a credit to a patient’s out-of-pocket costs, thus creating a shortcut that accelerates a patient’s progress to catastrophic coverage and limits their individual spend while pushing most of the costs into catastrophic for Medicare to foot the bill (as such Medicare’s collective drug spend continues to rise and drug companies net larger revenues).

Medicare Part D’s current design creates strong incentives for both beneficiaries and plans to select pricier brand names over cheaper generics — and 46Brooklyn’s researchers found that’s precisely what has happened.

Half of plans selected brand-name copaxone over the less expensive generic options. One out of every five plans dropped coverage for the generic versions altogether, according to an analysis of the data for the most recent plan year available.

As a growing number of specialty drugs go generic in the coming years, Medicare Part D reform is necessary to give generics a better shot at thriving in the market, or else the United States will face continued spikes in drug spending as well as higher costs for patients and taxpayers.

46Brooklyn Report on Copaxone

46Brooklyn Copaxone News Release

The Impact of Copaxone’s Cost

My name is Therese Humphrey, and I am from Chicago, Illinois. I spent my career as a registered nurse throughout the country. I was first diagnosed with multiple sclerosis in 2003.

When I was first prescribed copaxone for my MS, it cost me $1,800 a month, and I wiped out my savings. By the grace of God, I received grants for my medications for 2012 to 2016. Without it, I would be in the doughnut hole in the first month.

When I was unable to get a grant in 2017, the same medication cost $6,000 a month and forced me to go off of it entirely for three months and off my pancreas enzymes for six months, all because the cost was too expensive.

While off my medication, I began having difficulty with my cognitive function. I work really hard to keep my life in order and my memory intact even with MS. It was devastating. I lost something that is so valuable to me, and I am not the only one.

I have three grown kids and eight grandchildren, and they say to me Gran don’t worry, when you can’t walk, I’m just going to carry you.” But they shouldn’t have to care for me early because I cannot afford my medications. Because of the drug company’s greed, I lost something so valuable, and I’m not the only one.

(Shared with permission by Therese Humphrey and Patients for Affordable Drugs)