A cool trillion in generic savings: Are the feds taking full advantage?

A cool trillion dollars. That’s what the generic industry said U.S. patients and public and private health plan payers have saved over the last decade by switching from branded to generic prescription drugs at pharmacy counters.

Looked at another way, the Generic Pharmaceutical Association trumpeted in a study released last Thursday that me-too medicines saved a half-billion dollars a day between 2002 and 2011.

It’s an impressive number, but the savings would have been even greater for taxpayers and empty federal and state coffers if the dysfunctional pharmacy reimbursement systems for Medicare and Medicaid truly focused on saving money. Ditto for the Patient Protection and Affordable Care Act that launched health reform but didn’t create enough incentives for pharmacists to substitute lower-cost generics where available.

Policy-makers are conflicted. Such federal health programs as Medicare and Medicaid — along with overburdened employers and other private health plan sponsors — are grappling with an inexorable and unsustainable rise in costs for health services, including pharmaceuticals. But proposals by the Centers for Medicare and Medicaid Services, Congress and other regulatory and legislative bodies for overhauling the payment system for those federal and state health programs fail to take full advantage of the cost-saving potential of generics and in some cases come near to discouraging pharmacists from making the effort to shift patients to cost-effective alternatives.

Pressure to do so will only grow as the nation’s health budget continues to spiral out of control, payers demand solutions, patients squawk about rising co-pays and more and more branded drugs fall off the patent cliff. Those and other market forces are likely to sustain the long-running generic tide for years to come.

What do you think? Is CMS still missing the mark with its average manufacturer price-based formula for prescription reimbursements? Or is it dangerous to discourage branded manufacturers from continuing to develop a pipeline of new, expensive-to-produce medicines, either via traditional research and development methods or bioengineering?