Department of Health and Human Services
 
OFFICE OF 

 
INSPECTOR GENERAL 

 
 
 
 
 
 
 
 
GENERI C DRUG UTILIZATION IN 

 
M P D
 
THE  EDICARE  ART   
 
 
P  
ROGRAM 

 
 
 
 
 
 
Daniel R. Levinson 
  
Inspector General 

 
November 2007 
 
OEI-05-07-00130 
   
 
 
Office of Inspector General

http://oig.hhs.gov  
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452,  
as amended, is to  protect the integrity of  the Department of Health and Human Services 
(HHS)  programs, as well as the health and welfare of beneficiaries  served by those 
programs.  This statutory mission  is  carried  out through  a nationwide network  of  audits, 
investigations, and inspections conducted by the  following operating components:  
Office of Audit Services 
The Office of Audit Services (OAS) provides all auditing services  for HHS, either by  
conducting audits with its  own audit resources or by overseeing audit work done by others.   
Audits examine the performance of HHS programs and/or its grantees and  contractors  
in carrying out  their respective responsibilities and are intended  to provide independent  
assessments of  HHS programs and operations.  These assessments help reduce waste, 
abuse, and mismanagement  and  promote economy and  efficiency throughout HHS. 
Office of Evaluation and Inspections  
The Office  of  Evaluation and Inspections (OEI)  conducts national evaluations to  provide 
HHS, Congress, and the public with timely, useful, and reliable information on 
significant issues.  Specifically, these evaluations focus on preventing fraud,  waste,  or  
abuse and promoting  economy, efficiency, and effectiveness  in departmental programs.  
To promote impact, the reports also present practical recommendations for improving 
program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative  
investigations  of  allegations of wrongdoing  in HHS  programs or to HHS  beneficiaries  
and of unjust enrichment by  providers.  The investigative  efforts  of OI lead to  criminal  
convictions, administrative sanctions,  or  civil monetary penalties.  
Office of Counsel to the Inspector General 
The  Office of Counsel to the Inspector General (OCIG)  provides  general legal services  to  
OIG, rendering  advice and opinions on HHS programs and operations and  providing all  
legal support in OIG's internal operations.   OCIG imposes program exclusions and civil 
monetary penalties  on health care providers and litigates  those actions  within HHS.   
OCIG also  represents OIG in the global settlement of  cases  arising under the Civil False 
Claims Act, develops and monitors corporate integrity agreements, develops compliance 
program guidances, renders advisory opinions on OIG sanctions to  the health care  
community,  and issues fraud alerts  and other industry  guidance.  
   
   
  E X E C U T I V E   S U M M A R Y  
OBJECTIVE 
 
To determine the extent of generic drug utilization in the Medicare 
Part D program for the first two quarters of 2006. 
BACKGROUND 
Effective January 1, 2006, the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 made qualified 
prescription drug coverage under Medicare Part D (Part D) available to 
all individuals entitled to benefits under Medicare Part A or enrolled in 
Medicare Part B.  Beneficiaries generally have the option to  enroll in 
either stand-alone prescription drug plans (PDP) or Medicare 
Advantage prescription drug plans (MA-PD).  Under Part D, plans have  
broad discretion to design plan benefits and develop their drug 
utilization management tools. 
According to the Medicare Board of Trustees, Part D cost the Federal 
Government $47 billion in 2006. The cost of the Part D prescription 
drug program for 2006 was lower than the original estimate of 
$59 billion, and future cost estimates have also been reduced, due in 
part to greater than anticipated generic drug use.  Generic drugs cost, 
on average, 71 percent less than brand name drugs. 
Generic drug use is determined by the frequency of generic drug 
substitution at the pharmacy counter and the prescribing of drugs with 
no generic drug equivalents.  Therefore, in addition to calculating an 
overall rate of generic drug utilization (i.e., the percentage of all 
prescriptions that were for generic drugs), this study calculated the 
following rates that contribute to the overall generic drug utilization 
rate: 
1. 	  Generic drug substitution rate:  the percentage of prescriptions 
for multisource drugs (generic drugs and brand name drugs that 
have a generic equivalent) that were dispensed as generics.  
2. 	  Single-source drug-prescribing rate:  the percentage of all 
prescriptions that were written for single-source drugs (drugs 
that have no generic equivalent).  
These indicators of generic drug utilization were  calculated from 
341 million prescriptions paid for by Part D plans from January through 
June 2006. 
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FINDINGS 
Under Part D, generic drugs were dispensed 88 percent of the time  
when generic substitutes were available. The generic drug  
substitution rate measures how often generic drugs were dispensed 
when generic substitutes were available. For Part D, the overall generic  
drug substitution rate of 88 percent is similar to the median generic 
drug substitution rate of 89 percent  for State Medicaid programs during 
2004. 
Generic drug substitution rates were similar across Part D plans, 
between MA-PDs and PDPs, and across specific types of MA-PDs. 
However, Part D plans generic drug substitution rates varied widely 
within certain therapeutic classes (i.e., groups of drugs that treat the 
same medical condition).  
Under Part D, 37 percent of prescriptions were written for drugs that 
have no generic substitutes. Single-source drugs have no generic 
substitutes.  Therefore, the proportion of prescriptions that are written  
for them (i.e., the single-source drug-prescribing rate) limits Part D 
plans opportunities for generic drug utilization. For Part D,  the overall 
single-source drug-prescribing rate of 37 percent is similar to the 
median single-source drug-prescribing rate of 41 percent for State 
Medicaid programs during 2004. 
Single-source drug-prescribing rates varied across Part D plans, ranging 
from 14 percent to 59 percent. Single-source drug-prescribing rates 
were similar between MA-PDs and PDPs but varied across specific 
types of MA-PDs. Part  D plans single-source drug-prescribing rates 
also varied widely within certain therapeutic classes of drugs. For four 
therapeutic classesantiulcer/gastrointestinal preparations, 
cardiovascular preparations, lipotropics, and 
pyschostimulants/antidepressantsplans single-source                    
drug-prescribing rates varied by more than 95 percentage points. 
Under Part D, 56 percent of all drugs dispensed were generics. The 
generic drug utilization rate is the percentage of all prescriptions 
dispensed that were generics. For Part D, the overall generic drug 
utilization rate of 56 percent is similar to the median generic drug 
utilization rate of 54 percent for State Medicaid programs during 2004. 
Generic drug utilization rates varied across Part D plans, ranging from 
37 percent to 83 percent. Generic drug utilization rates were similar 
between MA-PDs and PDPs but varied across specific types of MA-PDs.   
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E X E C U T I V E   S U M M A R Y   
Variation in the rate of single-source drug prescribing primarily 
accounted for variation in generic drug utilization.  Generic drug 
utilization was highest in plans for which single-source drug prescribing 
was lowest; conversely, generic drug utilization was lowest in plans for 
which single-source drug prescribing was highest.  
CONCLUSION 
Overall, Part D achieved a high level of generic drug use during the first  
two quarters of calendar year 2006 that was similar to the level of 
generic drug use achieved by State Medicaid programs in 2004.  High 
rates of generic drug use help minimize costs to beneficiaries and keep 
Part D affordable over the long term.   
Despite high overall generic drug use, generic drug utilization rates 
varied among plans.  At  the low end, one Part D  plan achieved only a 
generic drug utilization rate of 37 percent, while one Part D plan 
achieved a rate of 83 percent.    
Variation in generic drug utilization rates is strongly related to 
variation in single-source drug prescribing, but not to generic drug 
substitution. In fact, Part D may have already achieved most of the 
growth in generic drug utilization possible through increasing generic 
drug substitution.   
To achieve increases in generic drug utilization, Part D plans may 
realize greater gains by encouraging the prescribing of multisource 
drugs because they offer the opportunity to dispense a generic drug. In 
particular, Part D plans could focus on therapeutic classes that 
exhibited wide ranges of single-source drug-prescribing rates.    
Lower single-source drug prescribing could be realized through the 
inclusion of multisource drugs in a Part D plans formulary, educating 
prescribers, or other means such as drug utilization management tools.  
However, such efforts must be undertaken with caution to ensure that 
beneficiaries maintain access to appropriate treatment. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
In response  to our draft report, the Centers for Medicare & Medicaid 
Services (CMS) generally concurred with our findings.  CMS noted 
differences between our  calculation and CMSs calculation of generic 
drug utilization and suggested that differences may be because of CMSs 
  OEI-05-07-00130   GENERIC DRUG  UTILIZATION IN THE  MEDICARE PART  D  P ROGRAM   iii   
   
E X E C U T I V E   S U M M A R Y   
inclusion of multisource brand name drugs in its measure of  generic 
drug utilization.  CMS also raised questions regarding the period under 
review and differences in generic drug utilization between MA-PDs and 
stand-alone PDPs. 
With respect to the issue of different calculations of generic drug 
utilization, CMS suggested that we include multisource brand name 
drug utilization data in our report and stated that including these data 
would narrow the gap between our and CMSs calculations of generic 
drug utilization rates.  We did not include multisource brand name drug 
utilization data in our measure of generic drug utilization because this 
would be inconsistent with the definition of generic drugs as used in this 
report.   We note that the analysis presented in this report is consistent 
with previous work on generic drug utilization conducted by the Office 
of Inspector General. 
In addition, our calculation of generic drug utilization reflects the 
current CMS regulatory definition for generic drugs.  Pursuant to 
CMSs regulations for Part D, a drug is defined as generic or brand 
depending on the drug application type.  Multisource brand name drugs 
are considered brand name drugs under this definition. 
 
  OEI-05-07-00130   GENERIC DRUG  UTILIZATION IN THE  MEDICARE PART  D  PROGRAM   iv   
 
 
  T A B L E   O F   C O N T E N T S  
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
  
 
 
I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1 
  
 
 
F I N D IN G S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12 
  
  Generic drugs were substituted 88 percent of the time. . . . . . . . .  12 
  
  Single-source drugs accounted for 37 percent of prescriptions . . .  14 

  Of all drugs dispensed, 56 percent were generics  . . . . . . . . . . . . .  18 
  
 
CONC LUSION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21 
  
  Agency Comments and Office of Inspector General Response . . .  22 

 
APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23 
  
  A:  Detailed Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23 
  
  B:  Analysis By Types of Medicare Advantage Plans  . . . . . . . . . .  26 
  
  C:  Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  28 
  
 
 
A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30 
  
   
   
  I N T R O D U C T I O N  
OBJECTIVE 
To determine the extent of generic drug utilization in the Medicare 
Part D program for the first two quarters of 2006. 
BACKGROUND 
The Medicare Prescription Drug Benefit 
Effective January 1, 2006, the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA) made qualified 
prescription drug coverage under Medicare Part D (Part D) available to 
all individuals entitled to benefits under Medicare Part A or enrolled in 
Medicare Part B.1  Beneficiaries have  the option to enroll in (1) a   
stand-alone  prescription drug plan (PDP) and receive all other Medicare  
benefits through traditional Medicare fee-for-service, or (2) a Medicare 
Advantage (MA) plan and receive all Medicare benefits (including drug 
coverage) through managed care.2    
The MA plans that offer Part D coverage are referred to as Medicare 
Advantage prescription  drug plans (MA-PD).  Some examples of 
MA plans that offer Part D coverage  include Private Fee-For-Service  
Plans, Health Maintenance Organizations, and  Preferred Provider 
Organizations. 
Enrollment  in PDPs and MA-PDs has risen steadily since the inception 
of Part D. In January 2006, the Centers for Medicare & Medicaid 
Services (CMS) reported that over 14 million Medicare beneficiaries had 
enrolled in PDPs or MA-PDs.  By January 2007, enrollment increased to 
almost 24 million beneficiaries, with over 15 million enrolled in PDPs 
and over 8 million enrolled in MA-PDs.3  
Generic Drugs 
There are three types of drugs:  single-source, brand name multisource, 
and generic. A single-source drug is  a brand name drug with no generic 
drug equivalents.  A brand name multisource drug is a brand name 
drug with generic drug equivalents. 
 
1 42 U.S.C.  1395w-101 (2003). 

2 42 U.S.C.  1395w-101(a) (2003).
  
3  Centers for Medicare & Medicaid Services.  Total Medicare Beneficiaries with Drug 
 
Coverage Data (v.01.16.07).  January 17, 2007.  
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A generic drug is chemically identical to its brand name counterpart, 
with the same therapeutic effect and risk-benefit profile. To be 
approved by the Food and Drug Administration (FDA), a generic drug  
must contain the same  amount(s) of the same active ingredient(s) as the 
brand name product.4 The generic drug must also be the same strength, 
be available in the same dosage, have the same route of administration, 
and have essentially the same labeling as the brand name drug. FDA 
gives an A rating to a generic drug that it finds to be pharmaceutically 
and therapeutically equivalent to the drugs brand name counterpart.  
Only A-rated generic drugs may be substituted by a pharmacist without 
permission from the prescribing physician. 
Part D Expenditures and Potential Savings from Generic Drugs 
According to the Medicare Board of Trustees, Part D cost the Federal 
Government $47 billion in 2006. 5 The Medicare  Board of Trustees also  
estimated the cost of Part D, from 2007 to 2016, to be between 
$823 billion and almost $1 trillion.6    
The cost of the Part D prescription drug program for 2006 was lower 
than the original estimate of $59 billion,7 and future cost estimates have 
also been reduced, due in part to greater than anticipated generic drug 
use.8 In testimony before the Senate Special Committee on Aging, CMS 
emphasized the role that generic drugs played in lowering the costs of 
Part D for the Federal Government.9    
 
4 Food and  Drug  Administration, What are Generic Drugs? Available online at 
http://www.fda.gov/cder/ogd/#Introduction. Accessed on June 12, 2007. 
5 The Medicare Board of Trustees. 2007 Annual Report of the Boards of Trustees of the 
Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds at 
5. Available online at http://www.cms.hhs.gov/ReportsTrustFunds/. Accessed on May 1, 
2007. 
6 Id. at 115. 
7 The Medicare Board of Trustees. 2006 Annual Report of the Boards of Trustees of the 
Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds at 
22. Available online at http://www.cms.hhs.gov/ReportsTrustFunds/. Accessed on July 27, 
2007. 
8 The Medicare Board of Trustees. 2007 Annual Report of the Boards of Trustees of the 
Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds at 
112-113. Available online at http://www.cms.hhs.gov/ReportsTrustFunds/. Accessed on 
May 1, 2007. 
9 Testimony of Centers for Medicare & Medicaid  Services former Administrator Dr. Mark 
McClellan before the Senate Special Committee on Aging, September 21, 2006. Available 
online at http://www.cms.hhs.gov/apps/media/press/testimony.asp?Counter=1971. Accessed 
on February 6, 2007. 
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Generally, generic drugs are cheaper than single-source and brand 
name multisource drugs. According to the National Association of 
Chain Drug Stores, in 2005 the average brand name drug prescription 
cost $101.71, while the average generic drug prescription cost $29.82a 
71 percent difference.10    
Using generic rather than brand name drugs may also reduce 
beneficiaries out-of-pocket costs for premiums, copayments, or  
coinsurance.  Premiums are based on estimates of a number of factors 
but are primarily driven by the Part  D plans expected drug costs and 
drug coverage.  In addition, beneficiaries are typically either  responsible 
for a percentage of the cost of their  prescription drugs or a set 
copayment, which may be lower for generic drugs than for brand name 
drugs. 
Beneficiaries are responsible for 100 percent of their drug costs in the 
coverage gap (either out-of-pocket or through supplemental coverage) if 
they are enrolled in Part D plans that do not provide coverage through 
the coverage gap. Under the 2006 standard Part D benefit package, 
once beneficiaries reached $750 in out-of-pocket expenses, standard 
plans would not cover any portion of the beneficiaries drug costs until 
the beneficiaries spent an additional $2,850 in out-of-pocket expenses.  
The Kaiser Family Foundation projected that approximately 4 million 
beneficiaries would incur costs in the coverage gap during 2006.11  
Given the potential savings for the Federal Government and 
beneficiaries, Congress and CMS have shown interest in the level of 
generic drug use under Part D.  In January 2007, Congress requested 
that the Office of Inspector General (OIG) conduct an evaluation to  
determine the extent of generic drug utilization under Part  D. 
Part D Drug Coverage and Utilization Management 
Part D plans have broad discretion  to design plan benefits and 
formularies.12  Formularies are one of the main tools that Part D plans 
can use to drive utilization, including generic drug use.  Formularies are 
a specified set of prescription drugs covered (i.e., paid for) by drug plans.  
 
10 National Association of Chain Drug Stores.  Available online at 
http://www.nacds.org/wmspage.cfm?parm1=507.  Accessed on January 5, 2007. 
11 The Henry J. Kaiser Foundation.  Medicare Fact Sheet:  The Medicare Prescription  
Drug Benefit, November 2006.  Available online at 
http://www.kff.org/medicare/upload/7044-05.pdf.  Accessed on June 25, 2007. 
12 42 U.S.C.  1395w-111(e)(2)(D) (2003). 
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Beneficiaries are responsible for the full cost of drugs not included on 
their Part D plans formulary, unless they apply for and are granted an 
exception.  
CMS provides oversight  of Part D plans formularies to ensure that 
Part D plan formularies meet legal requirements.  Specifically, CMS 
requires that formularies include at least two drugs in each  approved  
category and class (unless only one drug in a particular category or class 
is available).13  CMS also required that Part D plans not restrict access  
to necessary drugs for the first 3 months of Part  D (until                  
March 31, 2006). During this transition period, Part D plans were 
required to  provide access to drugs  that beneficiaries were previously 
taking, regardless of whether the drugs were covered under the Part D 
plans formulary. In 2007, during the first 90 days of a beneficiarys 
enrollment, plans must provide a one-time supply of drugs that 
beneficiaries were previously taking that are not on the plan formulary.  
Open enrollment for 2007 ended December 31, 2006.   
In addition to formularies, Part D plans can use drug utilization 
management tools to influence beneficiary drug utilization.  The MMA 
requires each Part D plan to have a drug utilization management 
program that includes incentives  to reduce costs when medically 
appropriate, such as through the use of generic  and brand name 
multisource drugs.14  Some of the tools employed by Part D plans to 
increase generic drug use include step therapy, prior authorization for 
brand name drugs, tiered formularies that charge less expensive 
copayments for generic drugs, and mandatory generic drug 
substitution.15  
In addition, Part D plans encourage generic drug utilization at 
pharmacies by making prices of generic and brand name drugs available 
for comparison to beneficiaries.  According to the MMA, each Part D 
plan should ensure that its network pharmacies inform beneficiaries of 
 
13 42 CFR  423.120(b)(2)(i) (2005). 

14 42 U.S.C.  1395w-104(c)(1)(A) (2003). 

15 For more information on Part  D formulary requirements, refer to the Medicare Part D 

Manual, Chapter 6-Part D Drugs and Formulary Requirements.  Available online at 
http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/PDBMChap6FormularyRe 
qrmts_03.09.07.pdf. Accessed on June 25, 2007.  
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the cost differential between the price of the prescribed drug and the 
lowest cost generic drug equivalent. 16    
Generic Drug Utilization 
Generic drug utilization is the result of a physician originally 
prescribing a generic drug or a pharmacist substituting a generic drug 
for a brand name multisource drug at the pharmacy. The rate at which 
these events occur is often referred to as the generic drug dispensing 
rate or generic usage rate. One industry report shows that generic 
drugs accounted for 57 percent of all retail drugs dispensed nationally 
during 2006.17  
During testimony before the Senate Special Committee on Aging, CMS 
reported generic drug usage among all Part D plans at 60 percent 
during the first two quarters of calendar year (CY) 2006.18 CMS also 
reported on its Web site a generic drug utilization rate of 66 percent for 
MA-PDs and 57 percent for PDPs.19    
Generic Drug  Substitution  
Generic drug substitution is only possible when a health care provider 
prescribes a multisource drug (i.e.,  a brand name multisource drug or 
its associated generic equivalent). Generic drug substitution occurs 
when a physician prescribes the generic version of a multisource drug 
rather than its brand name equivalent or when a pharmacist receives a  
prescription for a brand name multisource drug and dispenses the  
generic version instead.  
Theoretically, Part D plans should be able to achieve high generic drug 
substitution rates because generic drugs are chemically and 
therapeutically equivalent to their  brand name multisource  
counterparts. There are situations in which generic drug substitution is 
not possible, but these circumstances are rare.   For example, a small 
 
16 42 U.S.C.  1395w-104(k)(1)(2003). 

17 IMS Health, Available online at 

http://imshealth.com/vgn/images/portal/CIT_40000873/25/19/81829004MedicarePartD-
TheFirstYear.pdf. Accessed on August 16, 2007. 
18 Testimony of Centers for Medicare & Medicaid Services former Administrator 
Dr. Mark McClellan before the Senate Special Committee on Aging, September 21, 2006. 
Available online at http://www.cms.hhs.gov/apps/media/press/testimony.asp?Counter=1971. 
Accessed on February 6, 2007.   
19 Centers for Medicare & Medicaid Services. Part D Generic Dispensing Rates  
(v.02.08.07). Available online at 
http://www.cms.hhs.gov/PrescriptionDrugCovGenIn/06_PerformanceData.asp#TopOfPage. 
Accessed on February 12, 2007. 
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percentage of patients may medically require the brand name 
multisource drug if they are allergic to an inactive ingredient such as a 
dye or binder found in the generic version. Additionally, disruptions in 
the supply chain may mean that a pharmacy does not have the generic 
version of a drug in stock and must dispense the brand name 
multisource drug.20 Despite these potential barriers, generic drug 
substitution rates at or above 90 percent have been reported for the  
private sector.21  
Generic drug substitution is an attractive option for cost containment, 
because it can save money without  adversely affecting beneficiaries 
health. Although generic drug substitution generally achieves savings, 
it may not save money in all circumstances. Part D plans negotiate 
with prescription drug manufacturers to obtain rebates or other price 
concessions  for drugs on their formularies. In some instances, a Part D  
plan may be able to negotiate a lower net price for a brand name 
multisource drug than for its generic drug equivalent. 
Single-Source Drug Prescribing 
The rate at which single-source drugs are prescribed depends on a 
number of factors. These include prescriber habits, patient demand for 
newer or highly advertised drugs, and therapeutic advances associated 
with newer brand name drugs. For some conditions, single-source 
drugs are the only available treatment. Therefore, the health status 
and preferences of enrollees may lead to differences across plans in the 
rates of single-source drug prescribing. 
Related Office of Inspector General Work 
In July 2006, OIG determined the extent of generic drug utilization in 
State Medicaid programs during CY 2004.22 OIG found that State 
Medicaid programs demonstrated high generic utilization. However, 
certain therapeutic classes, which categorize drugs according to their 
most common  intended use, showed substantial variation in States 
generic drug substitution rates. In addition, this study found a 
 
20 Food and  Drug  Administration. Drug Shortages. Available online at 
http://www.fda.gov/cder/drug/shortages/. Accessed on May 14, 2007. 
21 Pharmaceutical Care Management Association, The Generic Drug Maze: Speeding 
Access to Affordable, Life Saving Drugs, Testimony of Mark Merrit Before the United  
States Senate Special Committee on Aging, July 20, 2006. 
22 Office of Inspector General. Generic Drug Utilization in State Medicaid Programs, 
OEI-05-05-00360, July 2006. Available online at  http://www.oig.hhs.gov/oei/reports/oei-05-
05-00360.pdf. Accessed on June 25, 2007. 
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correlation between single-source drug-prescribing rates and generic 
drug utilization rates across States.   
METHODOLOGY 
Scope 
This study determines the extent of generic drug use for the Part D 
program during the first two quarters of CY 2006.  It does not analyze 
the impact of Part D plans formularies or utilization management tools 
on generic drug use.  This study also does not determine what generic 
drug substitution, single-source drug prescribing, or generic drug 
utilization rates are appropriate.  Instead, by calculating different  
indicators of generic drug use and comparing Part D plans to one 
another, this study explores potential avenues for increasing generic 
drug use. 
Data Sources 
To conduct this study, we used Prescription Drug Event (PDE) data and 
First DataBank product information.  Part D plans submit PDE data to 
CMS.  Each event included in the PDE data represents a claim for the  
dispensing of a drug or  medical supply.23  These data contain FDAs 
National Drug Code (NDC), a three-part universal identifier that 
specifies the drugs manufacturer, name, dosage form, strength, and 
package size.  The PDE  data also include whether the drug is covered  
under the standard Part D benefit,  whether the drug is an                
over-the-counter drug, prescriber information, and where the 
prescription was dispensed.  
First DataBank is a third-party provider of drug pricing and product 
information. Among other things, it  provides information by the NDC, 
the drug name, standard therapeutic class, and whether the drug is a 
single-source drug, a brand name multisource drug, or a generic drug.  
Data Collection 
We collected all PDE data submitted by Part D plans from 
January 2006 through March 2007. Part D plans could submit PDE 
data for CY 2006 through the end of June of 2007.  By collecting all PDE 
data for this period, we increased the likelihood  that we captured a 
 
23 Medical supplies allowable under Part D include those associated with the injection of  
insulin. 
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substantial majority of all PDE data for the first two quarters of 
CY 2006. 
Data Analysis 
Our analysis included those PDE data with a date of service between 
January 1 and June 30, 2006.  This resulted in 404 million events from 
547 Part D plans. 
We merged the 404 million events with the First DataBank drug 
product information to obtain additional information about the 
dispensed drug.  To improve the accuracy of our  calculations, we 
removed events that could affect our analysis.  For example, we 
removed PDE claims for  medical supplies, for nonprescription drugs, 
and multiple submissions for the same dispensing event. This process 
left 341 million events (84 percent of the total submissions) from 
528 Part D plans (97 percent of plans) in our analysis.  See Table 1 for 
the number of plans and claims for MA-PDs, PDPs, and  
Employer/Union Contract PDPs.  See Appendix A for additional 
methodology and information on the types and number of claims 
removed. 
 
Table 1: Number of Plans and Claims for MA-PDs, 
  PDPs, and Employer/Union Contract  PDPs 
 
  Number of Plans  Number of Claims 
 
MA-PD  437  79,366,113 
 
PDP   83  260,224,786 
 
Employer/Union  
8  1,544,259 
Contract PDP 
 
Total   528  341,135,158 
 
Source:  OIG analysis of  January-June 2006 PDE data, 2007.  
 
For Part D in the aggregate and for each specific Part D plan, we 
calculated the generic drug utilization rate, as well as two indicators 
that contribute to overall generic drug utilization:  the generic drug 
substitution rate and the single-source drug-prescribing rate. We then  
determined the median across plans for each rate.   
We also calculated each Part D plans generic drug substitution rate and 
single-source drug-prescribing rate for the 10 standard therapeutic 
classes with the most claims.  We used the generic sequence number 
  OEI-05-07-00130   GENERIC DRUG  UTILIZATION IN THE  MEDICARE PART  D  PROGRAM   8   
   
I N T R O D U C T I O N   
associated with each NDC to determine the therapeutic class for each  
NDC.24    
To determine whether generic drug use was affected during the 
transition period by the requirement for Part D plans to provide 
beneficiaries access to drugs they were previously taking, we calculated 
and compared the overall generic drug utilization rate by month for 
each of the 6 months.   
Generic Drug Substitution Rate.  To determine the generic drug 
substitution rate, we divided the total of all FDA A-rated generic drug 
prescriptions by the total of multisource prescriptions (both brand name 
multisource and FDA A-rated generic).  We only considered generic 
drugs with an FDA A-rating as substitutable. 
 
Generic Drug Substitution Rate  
 
FDA A-Rated Generic Drug Prescriptions 
 
Multisource Drug Prescriptions (Brand Name Multisource             
  + FDA A-Rated Generic Drugs)  
 
Single-Source Drug-Prescribing Rate.  We calculated the single-source 
drug-prescribing rate by dividing the total of all single-source drug 
prescriptions by the total of all prescriptions.  The single-source       
drug-prescribing rate is useful because it inherently limits the rate at 
which generic drugs can be dispensed. 
 
Single-Source Drug-Prescribing Rate  
 
Single-Source Drug Prescriptions 
 
All Drug Prescriptions (Single-Source + Brand Name Multisource      
+ Generic Drugs)  
 
 
Generic Drug Utilization Rate.  We calculated the generic drug utilization 
rate by dividing the total number of generic drug prescriptions by the 
total of all prescriptions. This is also called the generic dispensing or 
generic usage rate. 
 
24 In the First DataBank  product data, the generic sequence number represents a generic 
drug formulation identifier that groups  drug  products by the set of ingredients, route of  
administration, dosage form, and strength of the drug. 
  OEI-05-07-00130   GENERIC DRUG  UTILIZATION IN THE  MEDICARE PART  D  PROGRAM   9   
   
I N T R O D U C T I O N
   
 
Generic Drug Utilization Rate  
 
Generic Drug Prescriptions 
 
All Drug Prescriptions (Single-Source + Brand Name Multisource        
+ Generic Drugs) 
 
 
CMS calculates a generic drug utilization rate that is not directly 
comparable to the generic drug utilization rate presented in this report.  
CMS also calculates generic drug utilization rates for Part D plans 
using data different from those used in this report. CMS bases its 
calculations on aggregate utilization data reported by each plan on a 
quarterly basis,25 reflecting a snapshot of claims available to Part D 
plans at the time of their submission.  The rates in this report are 
calculated using data from January through June 2006, which were 
submitted during a 15-month period.  In addition, plans have the option 
of using different methodologies to identify generic and brand name 
drugs.26  Plans do not specify the methodology they use in reporting 
their generic drug utilization.  
Comparing Plans Generic Drug Use.  Using the three rates we calculated 
for each Part D plan, we compared generic drug use across Part D plans.  
In addition, we analyzed and compared the rates for all MA-PD plans as 
a group to the rates for all PDP plans as a group.   
We further  analyzed MA-PD generic drug use to detect any differences  
among the different types of plans categorized as MA-PDs.  See 
Appendix B for a full list of MA-PD plans.     
Comparing Part D Generic Drug Use to Medicaid Generic Drug Use.   As a 
benchmark for the generic drug use rates that we found under Part D, we 
compared median plan rates under Part D to median rates among State 
Medicaid programs.  For purposes of the comparison to Medicaid, we used  
the previous OIG analysis of generic drug use rates under Medicaid during 
CY 2004. The CY 2004 Medicaid data included prescription drug 
utilization data for dual eligible beneficiaries.  Most of the 6 million dual 
 
25 Part D  plans are responsible for reporting these data using  definitions of generic and  
brand name drugs pursuant to 42 CFR  423.4. 
26 Pursuant to the January 25, 2006, Medicare Part D Reporting Requirements, Part D  
plans were to use First DataBank or Medispan  generic drug classifications to identify 
generic drugs. 
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eligibles who received prescription drug coverage under Medicaid in 
CY 2004 now receive their coverage under Part D. 
Data Limitations 
Because CMS policy allowed Part D plans to submit PDE data for 
CY 2006 through June 2007, our analysis may lack some claims from 
the first two quarters of CY 2006. However, there is no evidence to 
suggest that any outstanding PDE data are significantly weighted 
toward generic or single-source drugs. 
Because of enrollment errors, some plans paid for prescription drugs for 
beneficiaries enrolled in other plans. Although our data reflect these 
payment errors, they accurately reflect the drugs dispensed, which are 
determined  by the formulary of the plan that paid for the prescription 
drug claims. For an analysis of generic drug use, the significant factor 
is the type of drug allowed under the plans formularies and not which 
plan paid for the drug. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspections issued by the Presidents Council on Integrity and 
Efficiency and the Executive Council on Integrity and Efficiency. 
OEI-05-07-00130   GENERIC DRUG  UTILIZATION IN THE  MEDICARE PART  D  PROGRAM   11    
   
  F I N D I N G S  
Under Part D, generic drugs were dispensed  The generic drug substitution rate 
88 percent of the time when generic substitutes  measures how often generic drugs 
are dispensed when generic 
were available 
substitutes are available. For 
Part D, the overall generic drug substitution rate was 88 percent during  
the first two quarters of CY 2006.  The median generic drug substitution 
rate by Part D plans was 89 percent. 
Consistent with this analysis, a previous OIG study found that State 
Medicaid programs had a median generic drug substitution rate of  
89 percent during 2004.  Generic drug substitution rates at or above 
90 percent have been achieved outside of Medicare and Medicaid.27  
Generic drug substitution rates were similar across Part D plans  
Most Part D plans generic drug substitution rates were clustered 
tightly around the median Part D plan rate of 89 percent. Of the 
528 Part D plans analyzed, 468 had generic drug substitution rates 
within 5 percentage points of the median Part D plan rate of  89 percent.  
The overall range for plans generic drug substitution rates  was 
70 percent to 98 percent. See Table 2 for more details on Part D plan 
generic drug substitution rates. 
 
  Table 2: Generic Drug Substitution Rates Across Part D Plans During 
the First Two Quarters of CY 2006 
 
Range of Plan Generic  
  Median Plan   Lowest Plan  Highest Plan   Drug Substitution 
Generic Drug   Generic Drug   Generic Drug   Rates in the Middle 
  Substitution Rate  Substitution Rate  Substitution Rate  50 Percent of Plans 
 
89%  70%  98%  87%-90% 
 
Source:  OIG analysis of  January-June 2006 PDE data, 2007.  
 
Median generic drug substitution rates were similar between MA-PDs and  
PDPs and across types of MA-PDs  
The  median plan generic drug substitution rates  for MA-PDs, as a 
group, and PDPs were similar.  The median generic drug substitution 
rate for MA-PDs was 89 percent; it was 87 percent for PDPs.  
 
27 Pharmaceutical Care Management Association, The Generic Drug Maze:  Speeding 
Access to Affordable, Life Saving Drugs, Testimony of Mark Merrit Before the United  
States Senate Special Committee on Aging, July 20, 2006. 
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See Table 3 for more details on MA-PD and PDP generic drug 
substitution rates. 
 
Table 3: Gen eric Drug Substitution Rates for MA-PDs and PDPs During the First 
Two Quarters of CY 2006  
 
Range of Plan Generic  
  Median Plan   Lowest Plan  Highest Plan   Drug Substitution 
Generic Drug   Generic Drug   Generic Drug   Rates in the Middle 
    Substitution Rate  Substitution Rate  Substitution Rate  50 Percent of Plans 
 
MA-PD  89%  74%*  98%  87%-91% 
 
PDP   87%  70%*  93%*   86%-89% 
 
* The MA-PD with the lowest generic drug substitution rate had less than 100 claims. The PDP with the lowest 
generic drug subst itution rate had less than 200 claims. The PDP with the highest generic drug substitution rate 
had less than 400 claims. 
 
Source: OIG analysis of  January-June 2006 PDE data, 2007.  
 
An analysis by MA-PD plan types also shows minimal variation across 
generic drug substitution rates, ranging from 87 percent to 91 percent. 
See Appendix B for a breakout of generic drug substitution rates by 
MA-PD type. 
Generic drug substitution rates varied widely  within therapeutic classes of  
drugs 
Eight of the top 10 therapeutic classes had a 50 or greater percentage 
point difference between the lowest and highest rates. Among the 
10 classes of drugs we reviewed, the therapeutic class with the smallest  
variation between the lowest and highest plan rates, diuretics, still had 
a 25 percentage point range. 
In each of the top 10 therapeutic classes we reviewed, at least 
two Part D  plans achieved generic drug substitution rates of 
100 percent. In fact, 159 plans achieved rates of 100 percent in one or 
more  of these therapeutic classes.   However, in each therapeutic class 
some Part D plans achieved much lower rates of generic drug  
substitution. In two therapeutic classes, thyroid preparations and 
anticoagulants, the ranges between the Part D plan with the lowest 
generic drug substitution rate and the Part D plan with the highest rate 
were 99 and 86 percentage points, respectively. Given that several 
Part D plans achieved 100 percent generic drug substitution rates in  
each of the 10 therapeutic classes, opportunities may exist for other 
Part D plans to increase their rates of generic drug substitution.  
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Table 4 presents information on the generic drug substitution rates 
across Part D plans for the 10 most dispensed therapeutic classes. 
Table 4: Generic Drug Substitution Rates for Selected Therapeutic Classes During the First 
Two Quarters of CY 2006  
Median Plan   Minimum  Maximum 
Generic  Plan Generic  Plan Generic  Percentage Point 
Drug  Drug  Drug  Difference Between  
Substitution   Substitution   Substitution   Minimum and 
Therapeutic Class   Rate  Rate  Rate  Maximum Plan Rate  Total Claims 
 
Thyroid preparations  72%  1%*  100%  99%  9,457,235 
Anticoagulants   96%  14%  100%  86%   10,977,071 
Lipotropics   97%  29%  100%  71%   24,103,932 
Diabetic therapy   77%  33%  100%  67%   21,196,162 
Cardiovascular    
81%  34%  100%  66%  35,225,704 
preparations  
Psychostimulants-  
93%  43%  100%  57%  20,462,115 
Antidepressants  
 
Narcotic analgesics  96%  48%  100%  52%  17,275,975 
Antiulcer/gastrointestinal   
99%  50%  100%  50%  14,543,189 
preparations  
Hypotensives   93%  68%  100%  32%   33,061,444 
Diuretics   98%  75%  100%  25%   19,353,082 
* The plan with the lowest generic drug substitution rate appears to be an outlier. The generic drug  substitution rate for the  
plan with the next lowest rate is 12 percent. 
Source: OIG analysis of  January-June 2006 PDE data, 2007.  
 
Single-source drugs have no 
Under Part D, 37 percent of prescriptions were 
generic drug substitutes. For 
written for drugs that have no generic 
Part D, single-source drugs 
substitutes 
comprised 37 percent of all 
prescriptions filled during the first  
two quarters of CY 2006. When a single-source drug is prescribed, a 
generic drug cannot be dispensed. Thus, for this 37 percent  of 
prescriptions, there was no opportunity to dispense a generic drug. The 
median rate by Part D plan was 35 percent. 
In comparison, OIG previously found that State Medicaid programs had 
a median single-source drug-prescribing rate of 41 percent during 
CY 2004. 
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F I N D I N G S  
Single-source drug-prescribing rates varied widely  across Part D plans 
Part D plans single-source drug-prescribing rates varied, ranging from  
14 percent to 59 percent.  For five Part D plans, single-source drugs 
were prescribed 50 percent of the time or  more.  These Part D plans 
were more limited than others in their opportunities to dispense generic 
drugs.  See Table 5 for more details on Part D plans single-source   
drug-prescribing rates. 
 
 Table 5: Single-Source Drug-Prescribing Rates Across Part D Plans During  
the First Two Quarters of CY 2006 
 
Median Plan   Lowest Plan  Highest Plan   Range of Plan Single-Source  
  Single-Source  Single-Source  Single-Source  Drug-Prescribing Rates in 
Drug-Prescribing  Drug-Prescribing  Drug-Prescribing  the Middle 50 Percent of 
Rate  Rate  Rate  Plans 
 
 
35%  14%  59%*  31%-39% 
 
* The plan with the highest single-source drug-prescribing rate had very low enrollment and less 
 than 50 claims. 
Source:  OIG analysis of  January-June 2006 PDE data, 2007.  
 
Median single-source drug-prescribing rates were similar between MA-PDs 
and PDPs but varied across types of MA-PDs  
When comparing MA-PDs to PDPs, median single-source                 
drug-prescribing rates were similar.  The median single-source         
drug-prescribing rate for MA-PDs was 34 percent, only 5 percentage 
points lower than the median PDP rate of 39 percent.  However, specific 
MA-PDs achieved lower single-source drug-prescribing rates than 
PDPs.  Forty-nine MA-PDs were able to limit their single-source     
drug-prescribing rates to 25 percent  or below.  No PDP had a         
single-source drug-prescribing rate below 27 percent.  On the other 
hand, a similar number of MA-PDs (two) and PDPs (three) had rates at 
or above 50 percent.  See Table 6 on the following page for more details 
on MA-PD and PDP single-source drug-prescribing rates.   
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Table 6: Single -Source Drug-Prescribing Rates for MA-PDs and PDPs During the First 
Two Quarters of CY 2006  
 
Range of Plan    
  Median Plan   Lowest Plan  Highest Plan    Single-Source 
Single-Source  Single-Source  Single-Source  Drug-Prescribing Rates 
Drug-Prescribing  Drug-Prescribing  Drug-Prescribing  in the Middle 50 Percent 
 
  Rate  Rate  Rate  of Plans 
MA-PD    34%  14%  53% 29%-37% 
PDP     39%  27%  59%* 37%-41% 
* The PDP with the h ighest single-source drug-prescribing rate had very low enrollment and less than 50 claim 
submissions. 
Source: OIG analysis of  J anuary-June 2006 PDE data, 2007.  
 
When comparing rates across specific types of MA-PDs, median   
single-source prescribing rates showed variation. The lowest median 
single-source prescribing rate by plan type was 27 percent, while the 
highest median by plan type was 41 percent. See Appendix B for a 
breakout of single-source prescribing rates by MA-PD plan type. 
Single-source drug-prescribing rates varied widely  within therapeutic 
classes of drugs 
Part D plan single-source drug-prescribing rates varied widely within   
9 of the top  10 therapeutic classes that we reviewed. The range of 
single-source drug-prescribing rates within these therapeutic classes 
was most pronounced in two classes: antiulcer/gastrointestinal 
preparations and cardiovascular preparations. Part D plans        
single-source drug-prescribing rates in these two therapeutic classes 
varied by 99.5 and 99 percentage points, respectively.   
In fact, within five therapeutic classes, some Part D plans had no 
opportunity for generic drug utilization because they had single-source 
drug-prescribing rates of 100 percent. On the other hand, within all 
therapeutic classes, at least one Part  D plan was able to limit         
single-source drug prescribing to 14 percent or below. The ability of 
some plans to attain low single-source drug-prescribing rates in all 
10 therapeutic classes indicates that each therapeutic class had  
multisource drugs available. The wide variation within each 
therapeutic class suggests that Part D plans may have the opportunity 
to decrease  single-source drug prescribing and increase their rates of 
generic drug utilization.  
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F I N D I N G S  
Table 7 presents information on the single-source drug-prescribing rates 
for the 10 most dispensed therapeutic classes. 
 
Table 7: Single-Source Drug-Prescribing Rates for Selected Therapeutic Classes During the First 
2 Quarters of CY 2006 
Percentage  
Point 
Difference  
Median Plan   Minimum Plan   Maximum Plan   Between 
Single-Source  Single-Source  Single-Source  Minimum and 
Drug-Prescribing  Drug-Prescribing  Drug-Prescribing  Maximum Plan 
Therapeutic Class   Rate  Rate  Rate  Rate  Total Claims 
Antiulcer/gastrointestinal   
53%  0.48%  100%  99.5%  14,543,189 
preparations 
Cardiovascular    
23%  1%  100%*  99%  35,225,704 
preparations  
Lipotropics   80%  4%  100%   96%  24,103,932 
Psychostimulants-  
37%  4%  100%  96%  20,462,115 
Antidepressants  
Anticoagulants   50%  14%  100%   86%  10,977,071 
Hypotensives   30%  2%  75%   73%  33,061,444 
Diabetic Therapy   32%  4%  64%   60%  21,196,162 
 
Narcotic analgesics  1%  0.01%  60%  60%  17,275,975 
Thyroid preparations   0.42%  0.01%  29%   29%  9,457,235 
Diuretics   0.41%  0.01%  4%   4%  19,353,082 
*The plan with the highest single-source drug-prescribing rate in this class had low enrollment and few claims.  The next highest plan 
single-source drug-prescribing rate was 50 percent. 
Source:  OIG analysis of  January-June 2006 PDE data, 2007.  
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The generic drug utilization rate
Under Part D, 56 percent of all drugs dispensed 
is the percentage of all 
were generics 
prescriptions dispensed that were 
generic drugs regardless  of whether generic drugs were available. The 
overall generic drug utilization rate for Part D was 56 percent during 
the first two quarters of CY 2006. The overall generic drug utilization 
rate was consistent from month to month during these 6 months under 
Part D, including during the initial transition period from January 
through the end of March 2006. The median generic drug utilization 
rate by Part D plan was 58 percent. 
In comparison, a previous OIG study found that State Medicaid 
programs had a median generic drug utilization rate of 54 percent 
during CY 2004. Moreover, one recent industry report shows that 
generic drugs accounted for 57 percent of all retail drugs dispensed 
nationally during 2006.28  
Generic drug utilization rates varied widely across Part D plans 
Part D plans rates of generic drug utilization varied substantially from 
the median plan rate of 58 percent.   The lowest Part D plan generic 
drug utilization rate was 37 percent, while the highest was 83 percent. 
Eleven Part  D plans were able to achieve generic drug utilization rates 
at or above 75 percent. On the other hand, three Part D plans had 
generic drug utilization rates at or below 40 percent. See Table 8 for 
more details on Part D plan generic drug utilization rates. 
 
 
Table 8: Generic Drug Utilization Across Part D Plans During the First 
  Two Quarters of CY 2006  
Range of Plan Generic  
 
Median Plan   Lowest Plan  Highest Plan   Drug Utilization Rates in  
Generic Drug   Generic Drug   Generic Drug   the Middle 50 Percent of 
  Utilization Rate   Utilization Rate   Utilization Rate   Plans 
 
  58%  37%  83%  53%-62% 
 Source: OIG analysis of  January-June 2006 PDE data, 2007.  
 
28 IMS Health, Available online at 
http://imshealth.com/vgn/images/portal/CIT_40000873/25/19/81829004MedicarePartD-
TheFirstYear.pdf. Accessed on August 16, 2007. 
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FFF III NNN DDD III NNN GGG SSS  
Median generic drug utilization rates were similar between MA-PDs and 
PDPs but varied across types of MA-PDs 
When comparing MA-PDs, as a group, and PDPs, rates of generic 
drug use were similar. The median  generic drug utilization rate for 
MA-PDs was 59 percent, only 6 percentage points higher than the 
median PDP plan rate of 53 percent. Specific MA-PDs were able to 
achieve higher generic drug utilization rates than PDPs. Thirty   
MA-PDs had generic drug utilization rates above 70 percent. The 
highest generic utilization rate for a PDP was 68 percent. See Table 9 
for more details on MA-PD and PDP generic drug utilization rates. 
 
 
Table 9: Generic Drug Utilization Rates for MA-PDs and PDPs During the 
Firs t Two Quarters of CY 2006 
Range of Plan   
 
Median Plan   Lowest Plan  Generic Drug  
Generic Drug   Generic Drug   Highest Plan   Utilization Rates in 
  Utilization  Utilization  Generic Drug   the Middle 
  Rate  Rate  Utilization Rate   50 Percent of Plans 
   
MA-PD  59%  37%  83%  55%-64% 
 
PDP   53%  38%  68%   51%-56% 
 
Source: OIG analysis of  January-June 2006 PDE data, 2007.  
 
An analysis of MA-PD plan types shows variation across the median 
generic drug utilization rates, ranging from 51 percent to 66 percent.  
See Appendix B for a breakout of generic drug utilization rates by 
MA-PD plan type. 
Variation in generic drug utilization was primarily  explained by  variation in 
single-source drug prescribing 
Generic drug utilization is affected by both generic drug substitution 
and by single-source drug prescribing. However, the relationship  
between generic drug substitution and generic drug utilization rates 
does not explain variation across Part D plans generic drug utilization 
rates. Although generic drug substitution rates remained consistent 
across Part D plans, generic drug utilization rates varied widely from 
plan to plan. For example, 178 Part D plans had generic drug 
substitution rates of at least 90 percent but their generic drug 
utilization rates ranged between 38 percent and 83 percent.  
On the other hand, there is a strong relationship between single-source 
drug prescribing and generic drug utilization. Our analysis shows that 
OEI-05-07-00130   GENERIC DRUG  UTILIZATION IN THE  MEDICARE PART  D  PROGRAM   19   
   
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generic drug utilization was highest in Part D plans for which      
single-source drug prescribing was lowest. Of all 528 Part D plans 
reviewed, the Part D plan with the highest generic drug utilization rate 
(83 percent) also had the lowest single-source drug-prescribing rate 
(14 percent). Conversely, the Part D plan with the second lowest 
generic drug utilization rate (38 percent) had the highest single-source 
drug-prescribing rate (59 percent).    
Chart 1 displays the relationship between Part D plans generic drug 
utilization rates and single-source drug-prescribing rates under Part D  
for the first two quarters of CY 2006. 
CHART 1:   Part D Plans Generic Drug Utilization Rates Versus Single-Source  
Drug-Prescribing Rates During the First Two Quarters of CY 2006 
90.00% 
80.00% 
s 
e
at
R
 n  70.00% 
o
ati
z
Utili 60.00% 
g 
u
r
D
c  50.00% 
ri
e
n
e
G
s'  40.00% 
n
a
Pl R2 = 0.956
 
30.00%
 
20.00% 
5.00%  15.00%  25.00%  35.00%  45.00%  55.00%  65.00% 
Plans' Single Source Drug-Prescribing Rates 
Source: OIG analysis of  January-June 2006 PDE data, 2007  
 
This relationship between single-source drug prescribing and generic 
drug utilization also held true when analyzing across MA-PD plan 
types. Within each MA-PD plan type, generic drug utilization was 
highest where single-source drug prescribing was lowest. This 
relationship is also true when analyzing across PDPs. 
OEI-05-07-00130   GENERIC DRUG  UTILIZATION IN THE  MEDICARE PART  D  PROGRAM   20   
   
E X E C U T I V E   S U M M A R Y  
  C O N C L U S I O N
  
Overall, Part D achieved a level of generic drug use during the first 
two quarters of CY 2006 that was similar to the level of generic drug use 
achieved by State Medicaid programs in 2004.  High rates of generic 
drug use help reduce costs to beneficiaries and keep Part D affordable 
over the long term.   
Despite high generic drug use overall, generic drug utilization rates 
varied among plans.  At  the low end, one Part D  plan achieved a generic 
drug utilization rate of 37 percent, while another Part D plan achieved a 
rate of 83 percent.  Variation in median generic drug utilization rates 
also occurred across different types of MA-PDs. 
Variation in generic drug utilization rates appears to be a function of 
single-source drug prescribing and not generic drug substitution. In 
fact, the high levels of generic drug substitution that we found for most 
Part D plans suggest that Part D may have already achieved most of the 
growth in generic drug utilization possible through increasing generic 
drug substitution.  Still, Part D plans with generic drug substitution 
rates below  the median may wish to consider taking additional 
measures to increase generic drug substitution.  Further, certain 
therapeutic classes show substantial variation in Part D plans generic 
drug substitution rates  and, thus, greater potential gains for plans with 
lower rates in those classes. 
To achieve increases in generic drug utilization, Part D plans may 
realize greater gains by encouraging the prescribing of brand name 
multisource drugs which have generic equivalents.  It is important to 
recognize that single-source drug prescribing caps the level of generic  
drug utilization attainable.  In particular, Part D plans could focus on 
therapeutic classes with wide ranges  of single-source drug-prescribing 
rates.  For four classesantiulcer/gastrointestinal preparations, 
cardiovascular preparations, lipotropics, and pyschostimulants/ 
antidepressantsplans single-source drug-prescribing rates differed by 
more than 95 percentage points.  
Lower single-source drug prescribing could be realized through the 
inclusion of multisource drugs in a Part D plans formulary, educating 
prescribers, or other means such as drug utilization management tools.  
However, such efforts must be undertaken with caution to ensure that 
beneficiaries maintain access to appropriate treatment. 
 
  OEI-05-07-00130   GENERIC DRUG  UTILIZATION IN THE  MEDICARE PART  D  PROGRAM   21   
   
C O N C L U S I O N  

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
In response  to our draft report, CMS generally concurred with our  
findings. CMS noted differences between our calculation and CMSs 
calculation of generic drug utilization and suggested that differences 
may be because of CMSs inclusion of multisource brand name drugs in 
its measure of generic drug utilization.  CMS also raised questions 
regarding the period under review and differences in generic  drug 
utilization between MA-PDs and stand-alone PDPs. 
With respect to the issue of different calculations of generic drug 
utilization, CMS suggested that we include multisource brand name 
drug utilization data in our report and stated that including these data 
would narrow the gap between our and CMSs calculation of generic 
drug utilization rates.  We did not include multisource brand name drug 
utilization data in our measure of generic drug utilization because this 
would be inconsistent with the definition of generic drugs as used in this 
report.   We note that the analysis presented in this report is consistent 
with previous work on generic drug utilization conducted by OIG. 
In addition, our calculation of generic drug utilization reflects the 
current CMS regulatory definition for generic drugs.  Pursuant to 
42 CFR  423.4, a drug is defined for the purposes of Part D as generic 
or brand depending on the drug application type.  Multisource brand 
name drugs are considered brand name drugs under this definition. 
The full text of CMSs comments is included in Appendix C. 
 
  OEI-05-07-00130   GENERIC DRUG  UTILIZATION IN THE  MEDICARE PART  D  P ROGRAM   22   
   
  A P P E N D I X ~ A
DETAILED METHODOLOGY 
Associating Part D Plans With Their Prescription Drug Event Drug Claims 
To determine the Part D plan associated with the Prescription Drug 
Event (PDE) drug claims, we used the contract number for the plan that 
submitted the claim, not the contract number for the plan of record. We 
used the contract number for the plan submitting the claim because it 
identifies the plan that allowed and paid for the  prescription drug claim  
according to its formulary requirements.  The plan of record reflects the 
plan in which the beneficiary was enrolled, which should be the same as 
the plan submitting the claim.  In some cases, plans paid for 
prescription claims for beneficiaries  enrolled in other plans because of 
out-of-date enrollment data.  In such a case, the plan of record repays 
any plan that mistakenly paid for drugs dispensed to their enrollees. 
Steps To Ensure the Reliability of PDE Data 
To ensure the accuracy and reliability of our generic drug use 
calculations, our analysis included several steps to remove PDE drug 
claims that could affect our calculation of the three indicators of generic 
use.  After completing these steps,  341 million claims (84 percent of the 
overall claims) from 528 Medicare Part D plans remained for the 
analysis. Refer to Table 10 on page  25 for a summary of the types of 
claims removed. 
These steps ensured the following: 
 	  One claim for each dispensed prescription drug in the PDE data was 
analyzed. Part D plans have the ability to adjust claims within PDE 
data. A Part D plan can also delete  a claim from PDE data.  This 
study includes an analysis only of the last adjusted claim and omits 
all earlier claims that were adjusted and all deleted claims 
submissions.  We removed the adjusted and deleted claims using a 
process similar to one used by the Centers for Medicare & Medicaid  
Services (CMS). We removed 52,438,619 claims during this step. 
 	  Over-the-counter drugs  and drugs covered under supplemental 
benefits, which are drugs not covered as Part D drugs, were  not 
included in the analysis.  We removed 2,967,749 claims during this 
step. 
 	  No medical supply claims (e.g.,  diabetic supplies) were analyzed 
because they are not prescription drugs. We removed 19,555 claims 
during this step.   
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A P P E N D I X   ~   A  
 	  No drug claims that were listed as partial fills or complete fills were 
analyzed because they create the potential for overstating the 
number of prescriptions.  We removed 175,999 claims during this 
step. 
 	  No drugs without product information from First DataBank or CMS 
were analyzed.  Without product information from First DataBank 
or CMS, we  were unable to determine the therapeutic class of the 
drug, whether the drug was a brand name or generic drug, and 
whether there were generic equivalents to the drug.  We removed 
2,511,589 claims during this step.   
 	  No drug claims that were submitted to multiple plans on behalf of 
the same beneficiaries for the same  day were analyzed.  Because of 
the potential for misrepresenting utilization, all claims from these 
beneficiaries were removed from the analysis. We removed  
4,306,138 claims during this step.   
 	  No drug claims from Part D plans that were missing prescription 
drug claims for entire months were analyzed.  The PDE data 
contained submissions for the first two quarters of calendar year 
2006 from 547 Part D plans; however, this study retained claims 
from only 528 Part D plans.  Nineteen Part D plans were removed 
because their PDE data submissions contained entire months in 
which no prescription drugs were claimed.  We  removed 
328,935 claims during this step.   
 
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A P P E N D I X   ~   A  

Table 10: Types of Claims Removed From Generic Drug Utilization 
Analysis 
Total Claims  Percent of 
Type of Claims Removed   Removed  Total Claims 
Amended or deleted  52,438,619  13% 
Over-the-counter and supplemental drugs   2,967,749  1% 
Medical supplies   19,555  0% 
Prescriptions filled as multiple dispensing 
175,999  0% 
events 
No drug product information  2,511,589  1% 
Claims filed for beneficiaries to multiple Part D 
4,306,138  1% 
plans 
Part D plans with missing submissions   328,935  0% 
Total   62,748,584  16% 
Source:  OIG analysis of  January-June 2006 PDE data, 2007.  
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  A P P E N D I X ~ B
 
 
Table 11: Median Rates for Generic Drug Utilization Indicators by Types of  
 
Medicare Advantage Prescription Drug Plans 
  Median 
Median Generic   Single-Source  Median Generic 
  Drug Substitution  Drug-Prescribing  Drug Utilization  
MA-PD Plan Type   Rate  Rate  Rate 
1876 Cost P lan   90%  33%  61% 
Continuing C are Retirement   
87%  41%  51% 
Community  
Health Main tenance Organization 
(HMO)/HMO Point of Service  90%  32%   61% 
(HMOPOS)   
Local Preferred Provider   
Organization  (PPO)   87%  36%  56% 
Program of All Inclusive Care for 
  91%  34%  59% 
the Elderly (PACE) 
Other*    89%  34%  60% 
Private Fee- for-Service (PFFS)  87%  35%  57% 
Provider Ser vice Organization  
91%  32%  62% 
(PSO) 
 
Regional PPO  87%  37%  56% 
Social Healt h Maintenance   
90%  27%  66% 
Organization (SHMO)  
 
* Includes End Stage Renal Disease, Massachusetts Health Senior Care Options, Minnesota Disability  
Health Options, Minnesota Senior Health Options, and Wisconsin Partnership Program plan types.  
 
Source:  OIG analysis of  January-June 2006 PDE data, 2007.  
 
Refer to the following page for definitions of the types of Medicare 
Advantage prescription  drug plans. 
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A P P E N D I X   ~   B  
1876 Cost Plans:  Cost plans are operated by HMOs or Competitive 
Medical Plans in accordance with a cost reimbursement contract under  
1876(h) of the Social Security Act. Cost plans offer Part D but only as 
an optional supplemental benefit.   
Continuing Care Retirement Community:  These plans allow seniors to  
age in place, providing accommodations that are designed to meet 
their health and housing needs as these change over time.    
HMO/HMOPOS:  A type of Medicare Advantage (MA) plan in which a 
group of doctors, hospitals, and other health care providers agree to give 
health care to Medicare beneficiaries for a set amount of money.   
PPO:  An MA plan in which beneficiaries use doctors, hospitals, and 
providers that belong to  the network.  A local PPO has a service area 
that is less than a region and that may consist of a county, partial 
county, or multiple county service areas.  Regional PPOs can be offered 
only in an MA region within the 50 States and the District of Columbia. 
PACE:  PACE serves individuals who are age 55 or  older, certified by 
their State to need nursing home care, able to live safely in the 
community at the time  of enrollment, and live in a PACE service area.   
PFFS:  Beneficiaries may go to any Medicare-approved doctor or 
hospital that accepts the plans payment.  The insurance plan decides 
how much it will pay and what beneficiaries pay for the services they 
receive.   
PSO:  A private or public entity operated by a provider or group of 
affiliated providers.  These types of  organizations provide a substantial 
proportion of the health care services under the MA contract directly 
through the provider or  affiliated group of providers. 
SHMO:  An MA plan that expands coverage for community-based long 
term care and is designed to keep functionally impaired older people 
living at home. 
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   A P P E N D I X ~ C  
AGENCY COMMENTS 
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A G E N C Y   C O M M E N T S  
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  AA CP PK EN NO DW ILXE~DDG  M E N T S
 
This report was prepared under the  direction of Ann Maxwell, Regional 
Inspector General for Evaluation and Inspections in the Chicago 
regional office, and Thomas Komaniecki, Deputy Regional Inspector 
General. 
This report was led by Mark Stiglitz.  Other principal Office of 
Evaluation and Inspections staff from the Chicago regional office who 
contributed include Meghan Kearns.   Other principal central office staff 
who contributed include Linda Abbott and Eddie Baker. 
 
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