Expanding the Use of Generic Drugs 

December 1, 2010 
ASPE Issue Brief Expanding the Use of Generic Drugs 

Introduction 

Dramatic growth in the use of generic drugs has generated substantial savings for 

American consumers. To examine how the Department of Health and Human Services 

(HHS) can encourage the use of generic drugs, Secretary Sebelius asked the Assistant 

Secretary for Planning and Evaluation (ASPE) to examine barriers to, and opportunities 

for, expanding the use of generic drugs. In this Issue Brief we summarize the findings of 

ASPE’s review of the existing literature on this topic. We begin by briefly reviewing 

trends in generic drug use, the legislative origin of generic drugs in the United States, and 

the pathways by which generic drugs can reduce healthcare costs. Next, we examine the 

literature on generic drug pricing and the associated healthcare savings. We group 

information on barriers to generic drug use in three broad areas: state laws on generic 

substitution; factors related to availability of generics; and consumer and prescriber 

perceptions and behavior. Overall, we found that current levels of generic drug use are 

fairly high. There is potential for increased savings from generic drug use both through 

increased availability of generic drugs and through increased substitution, particularly 

therapeutic substitution as discussed below. 

Trends in Prescription Drug Spending and Generic Drug Use 

The rate of generic prescribing for all prescriptions reached almost 75 percent in 2009, up 

from 57 percent in 2004. Generic drugs cost much less than their branded counterpart, so 

the high rate of generic prescribing resulted in billions of dollars of savings for the U.S. 

health care system. In 2010 to 2014, a number of blockbusters are projected to go off 

patent representing more than $209 billion in annual drug sales. This trend is projected to 

result in a decrease in branded sales of $113 billion1

. Maintaining or improving the 

generic prescribing rate is an important tool in efforts to control health care costs. 

Legislative Origin of Generic Drugs 

Innovative branded drugs seeking Food and Drug Administration (FDA) approval are 

required to submit to FDA a new drug application that includes clinical trial data that 

establishes the safety and efficacy of the new drug. Manufacturers of innovative branded 

drugs expend considerable time and resources in research and development and the 

approval of new drugs. Some estimates indicate that bringing a new drug to market costs 

more than a billion dollars and takes 10-15 years2

. Generic drugs are therapeutically 

equivalent to a branded drug. Generic drugs are required to have the same active 

ingredient and the same strength, dosage form, and route of administration as the brand 

name (or reference) product. Most generic drugs do not need to contain the same inactive 

ingredients as the brand product. In addition, a generic drug must be bioequivalent to the 

 

1

 Paul, SM, Mytelka, DS, Dunwiddie, CT, Persinger, CC, Munos, BH, Lindborg, SR, and Schacht, AL. 

How to improve R&D productivity: the pharmaceutical industry’s grand challenge. Nature Reviews Drug 

Discovery. 2010;9:203-224. 2

 DiMasi. JA and Grabowski. HG. The cost of biopharmaceutical R&D: is biotech different? Managerial 

and Decision Economics. 2007:28:469-479. 

2
ASPE Issue Brief Expanding the Use of Generic Drugs 

brand drug, that is there must be no significant difference between the generic and brand 

product in the rate or the extent to which the active ingredient is delivered to the patient. 

There can be some variability between brand name and generic drugs, but FDA puts 

limits on how much variability is acceptable. Drugs approved by FDA as therapeutically 

equivalent can be substituted with the expectation that the substituted product will 

produce the same clinical effect and safety profile as the prescribed product. 

The Drug Price Competition and Patent Term Restoration Act of 1984 (frequently 

referred to as the Hatch-Waxman Act) amended the Federal Food, Drug, and Cosmetic 

Act to create an abbreviated pathway for approval of new drugs that are therapeutically 

equivalent to a branded drug. In addition to the patents that protect new inventions, 

Hatch-Waxman granted periods of exclusivity to manufacturers that had new drugs 

approved by FDA. If the branded drug is still in the period of exclusivity or protected 

under patent, generic versions of the branded drug can not be brought to market. The 

generic manufacturer files an abbreviated new drug application (ANDA) with the FDA. 

Once the drug is approved by the FDA and the branded drug is no longer protected by 

patent or exclusivity, the generic can be brought to market. Because they can reverseengineer an innovator drug, and need not repeat safety and effectiveness studies, generic 

manufacturers can bypass the time and costs to develop a new drug and bring a drug to 

market with a much smaller investment. The Hatch-Waxman Act also offered incentives 

for generic manufacturers to challenge the patents of innovator drugs by offering a 180-

day period of exclusivity for the first generic applicant to challenge the validity of a 

patent. The Act also allows exemptions from patent infringement for pre-application 

activities by generic drug sponsors. 

Most experts agree that the Hatch-Waxman Act greatly increased the availability of 

generic drugs in the U.S. market. Prior to the Act, 35 percent of top selling innovator 

drugs no longer under patent had generic equivalents. By the late 1990s, almost all had 

generic equivalents3

. 

Pathways through which Generic Drugs Reduce Health Care Costs 

Generic drugs can reduce healthcare costs through multiple pathways. These include 

generic substitution of drugs, substitution of drugs in the same therapeutic class, and 

reduction in the average branded prices paid by consumers due to generic substitution. 

The largest cost savings come from generic substitution of drugs by substituting the less 

expensive generic drug for the therapeutically equivalent branded drug. FDA publishes a 

list of drug products that are therapeutically equivalent in its publication Approved Drug 

Products with Therapeutic Equivalence Evaluations; however, generic substitution is not 

regulated by FDA. It can be done by the prescriber or the pharmacist, according to state 

laws and regulations. Because the generic drug is therapeutically equivalent to the 

branded drug, this substitution is straightforward. Generic substitution rates, the rate at 

which generic drugs are dispensed in the U.S., are almost 90 percent when there is a 

 

3

 CBO. How Increased Generic Competition has Affected Drug Prices and Returns in the Pharmaceutical 

Industry. July 1998. Accessed at http://www.cbo.gov/ftpdocs/6xx/doc655/pharm.pdf on 9/30/3010. 

3
ASPE Issue Brief Expanding the Use of Generic Drugs 

generic equivalent available4. However, restrictions on the ability of pharmacists to carry 

out generic substitution vary by state. 

Additional savings can result from therapeutic substitution. Therapeutic substitution is 

switching to a generic from a branded drug in the same therapeutic class. For example, a 

prescriber may switch a patient from the branded lipid-lowering statin, Lipitor (which as 

yet has no generic equivalent) to simvastatin, the generic equivalent of the branded lipidlowering statin, Zocor. This substitution has to be done by the prescriber; a pharmacist 

can not substitute between drugs that are not therapeutically equivalent. Formularies5

, 

prior approval6

, prescriber incentives7, and “step therapy”8 create incentives for 

prescribers to substitute less expensive generics for branded drugs with the same 

indication. FDA does not regulate therapeutic substitution. Historically, there has been 

little evidence of significant savings from this type of substitution, but there is recent 

evidence that it is becoming a more important source of savings. For example, after 

introduction of generic simvastatin (therapeutically equivalent to Zocor), a study of 

Medicaid drug expenditures found that prescriptions of Lipitor declined from 43 percent 

of total statin use before the introduction of generic simvastatin to 31 percent a year after 

the introduction of generic simvastatin9

. 

Another possible pathway for savings is a reduction in average branded prices paid by 

consumers resulting from generic substitution. A study by Rizzo and Zeckhauser found 

that a higher share of generic prescriptions result in lower average brand drug prices. The 

theory is that consumers are more likely to substitute generics for higher cost branded 

drugs and conversely less likely to substitute generics for lower cost branded drugs. This 

selective substitution would then effectively lower the average cost of branded drugs by 

leading brand name manufacturers to choose lower initial prices. This study found that a 

10 percent increase in the generic substitution rate is associated with a 15.6 percent 

decline in the average price paid for branded drugs10. 

Generic Drug Pricing 

Generic drug manufacturers face much lower costs to enter the market than 

manufacturers of branded drugs. While estimates of the cost to bring a new branded drug 

to market are in excess of a billion dollars, the research and development costs for a new 

 

4

 Shepard, Al. Generic Medicines: Essential contributors to the long-term health of society. IMS Health. 

2010. Accessed at 

http://www.imshealth.com/imshealth/Global/Content/Document/Market_Measurement_TL/Generic_Medic

ines_GA.pdf. 5

 Formularies are a list of drugs that a payer will pay for. 

6

 Requires the prescriber to obtain approval from the payer before prescribing certain drugs. 7

 Providing incentives, usually monetary, based on physicians prescribing behavior. 

8

 Step therapy is when a less expensive drug is prescribed first and the patient is moved up to more 

expensive drugs if necessary. 

9

 Shrank, WH, Choudhry, NK, Agnew-Blais, J, Federman, AD, Libermand, JN, Liu, J, Kesselheim, AS, 

Brookhart, MA, and Fischer, MA. State generic substitution laws can lower drug outlays under Medicaid. 

Health Affairs. 2010; 29(7): 1383-1390. 10 Rizzo and Zeckhauser. Generic script share and the price of brand-name drugs: the role of consumer 

choice. Int J Health Care Finance Econ. (2009) 9:391-316. 

4
ASPE Issue Brief Expanding the Use of Generic Drugs 

generic drug are only 1 to 2 million dollars11. The relatively low costs to entry for 

generic drugs lead to increased competition, which drive prices for generic drugs down 

dramatically. Data from the National Association of Chain Drug Stores showed that the 

average retail prescription price for a generic drug in 2009 was $39.73, 76 percent less 

than $155.45, the average cost for a branded drug12. The number of generic entrants 

appears to affect the price difference between branded and generic drugs. FDA analyzed 

the effect of generic drug entry on average prices for generics as a percentage of the price 

of the branded drug. They found that the first entrant has a relatively small effect on 

price, but subsequent entrants dramatically reduce the average relative price. Figure 1 

below shows the average relative price for generics relative to branded drugs by number 

of generic entrants in the market13. This analysis measures price as the price paid by the 

pharmacy, not the consumer. Pharmacies typically have higher markups for new generic 

drugs than branded drugs and older generic drugs14. Also, the FDA analysis does not 

account for the fact that the most profitable markets attract the most generic competitors. 

As a result, the FDA analysis may overestimate the size of the price decrease for early 

generic entrants. 

Figure 1: Average relative price of generic to brand by number of generic competitors 

Estimates of Savings from Generic Drugs 

 

11 H. Grabowski, “Patents and New Product Development in the Pharmaceutical and Biotechnology Industries,” 

Georgetown Public Policy Review 8, no. 2 (2003): 7–24. 12 From National Association of Chain Drug Stores. Facts at a Glance. Accessed at 

http://www.nacds.org/wmspage.cfm?parm1=6536 on September 30, 2010. 

13 FDA. Generic Drug Prices. http://www.fda.gov/AboutFDA/CentersOffices/CDER/ucm129385.htm 14 Kina and Wosinka. Pharmaceutical Pricing in Handbook of Pricing Research in Marketing. Edward 

Alger Pub May 2009. 

5
ASPE Issue Brief Expanding the Use of Generic Drugs 

In 2008, expenditures on prescription drugs reached $234 billion and were expected to 

grow 5.2 percent to $246.3 billion in 200915. The Congressional Budget Office (CBO) 

estimated savings from generic drugs for Medicare Part D in 2007. Total spending by the 

Part D program and its enrollees was $60 billion for one billion prescriptions in that year. 

Although 65 percent of prescriptions were filled by generic drugs, those prescriptions 

accounted for only 25 percent of total drug costs. CBO estimated that the availability of 

generics resulted in $33 billion in savings in 200716. A study by IMS Health, 

commissioned by the Generic Pharmaceutical Association, showed that savings from the 

use of generic drugs for the total healthcare system were estimated to be $139.6 billion in 

200917. 

A number of studies have estimated the potential savings from increasing the rate at 

which generics are dispensed. The CBO study found that increasing the generic 

substitution rate to 100 percent would result in an additional $900 million in savings18 for 

the Part D program and enrollees. Haas et al analyzed data from the Medical Expenditure 

Panel Survey (MEPS) and estimated that if a generic had been substituted for the 

therapeutically equivalent branded drugs (increasing the generic substitution rate from 61 

to 100 percent) that the total savings would have been $8.8 billion for the health care 

system in 2000. This estimate was likely an underestimate for 2000, as it did not include 

prescriptions for children and did not account for missing data in MEPS19. Another study 

from Fisher and Avorn estimated spending by Medicaid for drugs for 48 states and the 

District of Columbia. In 2000, the total amount reimbursed by Medicaid in the studied 

states was $20.9 billion for drugs, of which $4.3 billion were for drugs that were 

available in generic forms. Fisher and Avorn found that an additional $229 million could 

have been saved if the generic substitution rate had been 100 percent. They found 

considerable state-level variation in potential savings ranging from 3.3 to 10.3 percent of 

total spending on drugs with generics available. However, the authors did not explore 

reasons for the variability between states. Another study of Medicaid spending by Alex 

Brill found that Medicaid could have saved $271 million of the total Medicaid spending 

of $21.8 billion by achieving a 100 percent generic substitution rate for 20 studied drugs. 

Across the 20 reference drugs the substitution rate ranged from 44 percent to 99 percent 

with an average generic substitution rate of 87 percent. This study found that most of the 

potential savings were concentrated in newly available generic substitutes due to a time 

lag in prescriber and pharmacist adoption of substitution with the newly available 

generic20. 

 

15 Andrea M. Sisko, Christopher J. Truffer, Sean P. Keehan, John A. Poisal, M. Kent Clemens, and 

Andrew J. Madison. National health spending projections: the estimated impact of reform through 2019. 

Health Affairs Web First, September 9, 2010. 16 CBO. Effects of using generic drugs on Medicare’s prescription drug spending. September, 2010. 

17 GPhA. Savings achieved through the use of generic pharmaceuticals: 2000-2009.July, 2010. 18 Ibid. 

19 Haas, JS, Phillips, K, Gerstenberger, SP, Seger, AC. Potential savings from substituting generic drugs for 

brand-name drugs: Medical Expenditure Panel Survey 1997-2000. Annals of Internal Medicine. 

2005;142(11):891-897. 

20 Brill, A. Overspending on multi-source drugs in Medicaid. AEI Health Policy Working Paper _2010-01. 

6
ASPE Issue Brief Expanding the Use of Generic Drugs 

These studies consider the cost savings from achieving a 100 percent generic substitution 

rate. This is probably not a realistic or desirable goal. Generic drugs and their branded 

counterparts may differ in inactive ingredients, such as flavors, colors or binders and for 

some patients these differences can be important. For example, a patient with an allergy 

to a certain dye may be limited to using the branded drug or another generic that does not 

use that dye. 

Studies of savings from Medicaid are uncertain due to rebates Medicaid receives from 

manufacturers. By law, Medicaid receives a larger rebate for branded than for generic 

drugs. These rebates are based on the average manufacturer price, which is proprietary, 

so researchers can not calculate the actual rebate. The difference in generic and branded 

drug price may be small in the first six months after introduction of the generic, when the 

first generic has exclusivity from other generic manufacturers. Therefore, in some cases 

generic drugs can be more expensive for Medicaid than branded drugs due to the larger 

rebate for branded drugs. 

Further increases in savings are achievable from increasing therapeutic substitution. 

CBO examined seven therapeutic classes identified as having potential for therapeutic 

substitution and estimated that if all of the brand name drugs in those classes had been 

switched to a generic drug, prescription drug costs would have been reduced by $4 billion 

for the Part D program and its enrollees. 

Barriers to Greater Savings from Generic Drug Use 

Barriers to the use of generic drugs can occur at a number of points, including state laws 

on generic substitution; factors related to availability of generics; and consumer and 

prescriber perceptions and behavior. 

State Generic Substitution Laws 

State laws regulate the practice of pharmacy. As a result, there is variation in 

requirements for when pharmacists can or must dispense generics among states. Some 

states require a pharmacist to substitute a therapeutically equivalent generic for a brand 

name drug, unless the physician specifies that a generic must not be substituted. Other 

states take a more permissive approach and allow, but do not require, pharmacists to 

substitute a generic drug, as long as the prescriber does not specify brand only. Some 

states impose an additional limitation that the pharmacist must get consent from the 

patient before substituting a generic. All states also allow the physician to specify that the 

brand name must be prescribed, although with different levels of effort from the 

physician. Appendix A provides state laws governing generic substitution by pharmacies. 

A recent study of the effect of state generic substitution laws on drug spending under 

Medicaid found that state generic substitution laws can have a significant impact on drug 

spending. The study looked at spending by state on Zocor, generic simvastatin, and 

Lipitor in the first six quarters after the introduction of generic simvastatin. The study 

found a significant impact of patient consent laws on generic substitution. States that 

7
ASPE Issue Brief Expanding the Use of Generic Drugs 

require patient consent had higher average prescription costs for Zocor and generic 

simvastatin combined than states that did not require patient consent. This difference was 

highest in the first quarter after patent expiration, $15.35, and declined to $2.68 by the 

fifth quarter after patent expiration. Similarly, six months after patent expiration, 98 

percent of simvastatin prescriptions were written for generic simvastatin in states that did 

not require patient consent, while less than one third of prescriptions were filled by 

generic simvastatin in states that did require patient consent. The study did not find 

consistent differences in generic prescription rates between states that permitted 

pharmacists to prescribe generic alternative versus states that required pharmacists to 

prescribe a generic alternative21. Pharmacists have a financial incentive to prescribe 

generics, as the mark up received by pharmacies is largest for new generics. 

The study also looked at the impact of state laws and Medicaid policies, like prior 

authorization, on prescriptions for Lipitor, another statin in the same therapeutic class, 

but not therapeutically equivalent to simvastatin. Lipitor use declined from 43 percent of 

statin use before the introduction of generic simvastatin to 36 percent six quarters after 

the introduction of generic simvastatin. In states that required prior authorization for the 

prescription of Lipitor, Lipitor use was 31 percent lower than in states that did not. Other 

state generic substitution laws did not affect the levels of Lipitor use. 

These findings for statin use in Medicaid may not be generalizable. The analysis of state 

laws for the introduction of a single generic drug, simvastatin, may differ from results for 

other drugs. Evidence from other studies suggests that savings vary by drug22. More 

generics are likely to enter when the market for the branded drug is larger and more 

profitable. Also, drugs used by patients that are more responsive to price changes are also 

more likely to have generic competitors, such as drugs that are delivered in an inpatient 

setting or for chronic conditions23. 

There are also significant differences in the Medicaid and non-Medicaid populations. A 

survey on patients’ perceptions of generic medications found that patients that are older, 

patients that are poorer and patients with self-reported poor health were more likely to 

believe that brand name drugs are safer than generic drugs24. Additionally, differences in 

co-pays between branded and generic drugs are much smaller in Medicaid than for most 

private insurance plans. Medicaid co-payments for retail drugs vary by state, but 

typically range from fifty cents to three dollars with lower amounts for generic and higher 

amounts for branded drugs25. In the private insurance market, the average co-pay for a 

 

21 Shrank, WH, Choudhry NK, Agnew-Blais J, Federman AD, Libermand JN, Liu J, Kesselheim AS, 

Brookhart MA, and Fischer MA. State generic substitution laws can lower drug outlays under Medicaid. 

Health Affairs. 2010;29(7):1383-1390. 22 Brill, A. Overspending on multi-source drugs in Medicaid. AEI Health Policy Working Paper _2010-01. 

23 Scott Morton, F. (1997), ‘The strategic response by pharmaceutical firms to the Medicaid most-favored 

customer rules’, RAND Journal of Economics, 1997: 28(2):269–90. 24 Shrank, W, Cox, E, Fischer, MA, Mehta, J, Choudry, NK. Patients perceptions of generic medicines. 

Health Affairs, 2009;28(2):546-556. 25 Kaiser Family Foundation. Medicaid Benefits: Online Database, 2008. 

http://medicaidbenefits.kff.org/service.jsp?yr=4&so=0&cat=5&sv=32&gr=off&x=87&y=18

8
ASPE Issue Brief Expanding the Use of Generic Drugs 

generic drug is $10, while the average co-pay for a preferred branded drug is $25 and for 

a nonpreferred branded drug the average co-pay is $4326. 

A few states also limit generic substitution by the pharmacist for drugs with a Narrow 

Therapeutic Index (NTI). Drugs with a narrow therapeutic index require careful titration 

and patient monitoring because there are relatively small differences between the 

effective dose and a toxic dose. NTI drugs include some anti-epileptic drugs, warfarin, 

and digoxin. FDA’s policy regarding NTI drugs is that the generics are therapeutically 

equivalent to the branded drugs. However, some states require that generic versions can 

not be substituted for NTI drugs without the prescriber’s consent. No studies were 

identified that specifically address the impact of the state-level limitations on NTI drugs. 

Relatively few states impose this restriction and the impact of the state law would be 

difficult to disentangle from prescriber concerns about NTI substitution. 

Availability of Generics 

The most important factor for whether consumers purchase generic drugs is the 

availability of a generic. Innovator drugs are protected from generic rivals by patents and 

by exclusivity. 

Patents are issued by the U.S. Patent Office and offer 20 years of protection from 

competition. However, sponsors typically apply for a patent early in the drug 

development process and so many of the years of patent protection will be expended 

before the drug reaches the market. The Hatch-Waxman Act offers restoration of some 

of the years of patent protection expended during clinical testing and FDA review. Up to 

five years of patent term may be restored, with the total patent time after FDA approval 

limited to 14 years. The patent owner has to apply to the U.S. Patent Office for the 

restoration of patent life. 

The Hatch-Waxman Act also provides innovator manufacturers with different periods of 

marketing exclusivity, depending upon the novelty of the drug. Marketing exclusivity is 

independent of patent protection. Some of the exclusivity periods delay the submission 

of an ANDA to the FDA for review, while others delay approval of an ANDA. 

Legal Settlement “Pay-for-Delay” 

In some instances, a brand-name drug company may settle a patent challenge from a 

generic competitor by paying the generic company to delay entering the generic into the 

market. These settlements, called pay-for-delay or reverse payments, delay generic 

competition and the availability of generics. The FTC reports that there were 19 such 

agreements in fiscal year 2009, with each agreement on average delaying the availability 

of cost-saving generics by 17 months. The FTC also reported that, in January, 2010, such 

agreements were protecting at least $20 billion in sales of branded drugs from generic 

 

26 Pharmacy Benefit Management Institute. Prescription Drug Benefit Cost and Plan Design, Online 

Report, 2010-11, 2010. 

http://www.benefitdesignreport.com/CostSharingHighlights/RetailCopayments/tabid/84/Default.aspx. 

9
ASPE Issue Brief Expanding the Use of Generic Drugs 

competition. The FTC estimated that pay-for-delay agreements cost American 

consumers $3.5 billion per year – $35 billion over the next 10 years27. The FTC has 

attempted to prosecute pay-to-delay agreements; however, these efforts have not been 

uniformly upheld in federal courts28. The FTC has continued to litigate pay-for-delay 

cases in the courts and has recommended Congress pass legislation to prevent pay-fordelay agreements. 

Speed of Generic Drug Application Approvals 

As of June, 2010, FDA has 2,136 ANDAs pending, of these 850 are for generics not 

blocked by patents29. This has resulted in a median approval time of 27 months for new 

generic drugs which includes time awaiting responses to information requests to 

sponsors. Because the average ratio of generic to branded drug price continues to 

decrease as additional generic drugs enter the market, delays for additional market 

entrants even beyond the first generic equivalent may reduce cost savings. However, 

delays in generic drug approval may not necessarily result in lost cost savings. First 

generics are rarely delayed by FDA review; most first generics are available when the 

patent expires. Often generic drug manufacturers submit applications to the FDA in 

advance of patent expiration or in anticipation of resolution of a patent dispute. These 

generic drugs, even if approved, will not be able to enter the market until the patent 

expires or is found invalid. ANDAs in the FDA “backlog” may also not be delayed by 

FDA review, as ANDAs pending at FDA could include ANDAs that have been returned 

to the sponsor with an information request. It is difficult to assess the economic 

significance of the pending applications not blocked by patents without analysis of the 

markets for the drugs that have pending applications. To speed generic approvals, FDA 

has requested authority to collect user fees for the review of generic drugs in the FY2011 

President’s Budget. 

Availability of Biosimilar Biologic Drugs 

Another area of potential cost savings is the abbreviated pathway for approval of 

biosimilar biologic drugs under the Biologics Price Competition and Innovation Act of 

2009 (BPCIA), within the Patient Protection and Affordable Care Act (PL 111-148). 

These biological drugs, regulated under the Public Health Service Act, are not eligible for 

the abbreviated approval pathway for generic drugs under the Hatch Waxman Act. The 

U.S. had $59 billion in sales in biologics in 200830 . A recent estimate in December 2008 

by the CBO suggests that the federal government, primarily Medicare, will save between 

$9 billion and $12 billion over 10 years by creating an abbreviated approval pathway for 

 

27 Jon Leibowitz, Chairman, Fed. Trade Commission, “Pay-for-Delay” Settlements in the Pharmaceutical 

Industry: How Congress Can Stop Anticompetitive Conduct, Protect Consumers’ Wallets, and Help Pay 

for Health Care Reform (The $35 Billion Solution) at 8 ( June 23, 2009), available at:

http://www.ftc.gov/speeches/leibowitz/090623payfordelayspeech.pdf. 28 “Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions,” FTC Staff Study (Jan. 2010),

http://www.ftc.gov/os/2010/01/100112payfordelayrpt.pdf. 29 FDA. FDA-TRACK CDER Office of Generic Drugs Dashboard. Accessed at: 

http://www.fda.gov/AboutFDA/Transparency/track/ucm206235.htm 30 IMS Biologics Webinar. 2009. 

10
ASPE Issue Brief Expanding the Use of Generic Drugs 

biosimilar biologic drugs31. The FDA is currently working to implement the provisions of 

the BPCIA. 

Consumer Perceptions of Generics 

Although physicians and pharmacists act as patients’ agents in selecting appropriate 

drugs, patients have discretion in choosing whether to use generic drugs. Patients can 

communicate to their physicians or pharmacists their preference for branded drugs. 

Whether patients communicate a preference for branded drugs may depend on a number 

of factors, including drugs the patient is now using or has used in the past, knowledge 

about the specific generic or branded drugs, general knowledge about generics and 

branded drugs, and financial incentives to use generic drugs. 

A recent survey of 2,500 commercially insured beneficiaries of a large, national 

pharmacy benefits manager found that although most consumers believe that generic 

drugs are a better value than branded drugs and are equally safe, this did not necessarily 

transfer into a preference for purchasing generic drugs. Fifty-six percent reported that 

Americans should use more generics, but only 36 percent of those surveyed preferred to 

take generics32. 

A study of the impact of alternative interventions on generic drug use examined claims 

level data from Blue Cross Blue Shield of Michigan33. The authors examined a number 

of interventions: communication to plan members about generic drugs, statewide 

advertising, physician incentives, generic sampling, and doubling the co-pay for branded 

drugs. The study found that only the change in co-pay had an effect on the generic 

dispensing rate. However, the lack of impact of the physician incentives may be due to 

the sample of physician groups chosen for the study. The program targeted physicians in 

well-managed practices, which may have had little room to improve in the generic 

dispensing rates. 

Prescriber Behavior 

Physician prescribing behavior is important to high generic prescription rates. Physicians 

may not prescribe generics due to habit or out of concerns about safety and efficacy of 

generic drugs. A study analyzing data from the National Ambulatory Medical Care 

Survey found that the majority of physicians referred to drugs by their brand name rather 

than generic name34. This means physicians when prescribing may prescribe the branded 

drug out of habit rather than intention. In these cases, permitting pharmacists to 

substitute generic drugs can be an important factor in maintaining high generic 

substitution rates. 

 

31 CBO. Budget Options Volume 1: Health Care. 2008 

32 Shrank, W, Cox, E, Fischer, MA, Mehta, J, Choudry, NK. Patients perceptions of generic medicines. 

Health Affairs, March/April 2009;28(2):546-556. 33 O’Malley, A, Frank, RG, Kaddis, A, Rothenberg, BM, and McNeil, BJ. Impact of Alternative 

Interventions on Changes in Generic Dispensing Rates. Health Services Research, 2006;41(5):1876-1894. 34 Steinman, MA, Chren, MM, Lendefeld, CS. What’s in a name? Use of brand-name versus generic drug 

names in United States outpatient practice. J Gen Intern Med. 2007;22(5):645-648. 

11
ASPE Issue Brief Expanding the Use of Generic Drugs 

Differences between branded and generics exist that may compel the physician to 

prescribe the branded drug. The generic drug can differ from the branded in inactive 

ingredients, as long as this does not interfere with therapeutic equivalence. Patient 

sensitivities or allergies to inactive ingredients may necessitate using the branded version. 

Physicians may also believe that there are safety or efficacy differences between the 

branded and the generic. For example, some health care providers are unwilling to 

substitute NTI drugs. The American Academy of Neurology’s official position is that 

"The AAN opposes generic substitution of anticonvulsant drugs for the treatment of 

epilepsy without the attending physician's approval35. In these cases the physician 

chooses deliberately to prescribe the branded drug. Physician education may have some 

influence on physician behavior, but this is likely to be difficult to change. 

Unlike substitution of therapeutically equivalent generics for branded drugs, substitution 

of a generic drug for a branded drug that is not therapeutically equivalent, but has the 

same indication for a branded drug, requires that the physician make a decision to 

prescribe a generic. Physician education, incentives, and use of e-prescribing may 

influence physicians to change their behavior. E-prescribing is theorized to increase 

generic drug use by making information about available generics, formularies and cost 

information available to physicians at the time of prescribing. One study found that in 

the Blue Shield of California system that e-prescribing increased generic drug use by 5.9 

percent36. 

Conclusions 

The rapid increase in generic prescribing makes estimates of savings and potential 

increases in savings from generic drug use a fast moving target. There is a clear 

consensus that generic savings are now a large and important source of health care 

savings. Increases in cost savings from greater substitution of generics for 

therapeutically equivalent drugs appear possible, though these increases are likely to be 

small relative to total spending on drugs. Limited evidence indicates that state 

prescribing laws that allow consumers more choice in whether to use generics reduce 

generic drug use. 

Setting mechanisms to increase substitution of generic drugs for branded drugs that are 

not therapeutically equivalent, but have the same indication, has more potential for 

increasing cost savings. Increasing cost savings in this area relies most on educating 

physicians and setting mechanisms in place to encourage substitution. However, because 

in these cases the generics are not therapeutically equivalent, substitution must be done 

appropriately to ensure efficacy and patient safety. 

 

35 Liow, K, Barkley, GL, Pollard, JR, Harden, CL, Bazil, CW. Position Statement on the coverage of 

anticonvulsant drugs for the treatment of epilepsy. Neurology. 2007;68:1249-1250. 36 Chang, C, Nguyen, N, Smith, A, and Huynh, D. Impact of electronic prescribing on outpatient 

prescription drug use and adherence in a network-model health plan. Presented at: Academy of Managed 

Care Pharmacy 22nd Annual Meeting and Showcase: April 9-10; San Diego. 

12
ASPE Issue Brief Expanding the Use of Generic Drugs 

13

Increased availability of generic drugs by eliminating pay-for-delay agreements and 

speeding ANDA reviews by FDA also shows promise for increasing savings. The FTC 

estimates that American consumers could save $35 billion over the next ten years due to 

earlier access to generic drugs if pay-for-delay agreements were eliminated. Although 

FDA ensures that reviews of ANDAs for first generics are not delayed, speeding reviews 

of subsequent generic competitors may further decrease generic prices, as research shows 

that more generic competitors lead to lower prices. However, without analysis of the 

pending ANDAs, the economic significance of the review delays can not be assessed. 

The greatest and most certain potential for increased savings in the near future lies in 

increased availability of generic drugs through patent expiration for current blockbuster 

drugs. The high level of acceptance of generic drugs and mechanisms set in place to 

encourage generic substitution should result in continuing increases in savings from this 

avenue. 
Appendix A: List of state laws governing generic substitution by pharmacists. 

State 

Allows for Generic 

Substitution by 

Pharmacists if "Brand 

Only" Not Indicated 

by Physician

Mandates Generic 

Substitution by 

Pharmacists if "Brand 

Only" Not Indicated 

by Physician

Allows for Brand if 

Requested by 

Patient

Mandates Brand 

Only if Indicated by 

Physician

To E

Phys

Followin

OR 

Alabama 

√

√

√

Sign the labeled "M"Dispens

Alaska 

√

√

√

In the phywords "Bmust app

Arizona 

√

√

√

Clearly d"DAW" oSubstitut

Arkansas 

√

√

√

In the phyindicate tshould no

California 

√

√

√

In the phywords "Dappear o

Colorado 

√

√

√

In the phywords "Dappear o

Connecticut 

√

√

√

In the phyindicate tshould no

Delaware 

√

√

√

Sign the labeled "M"Dispens
Florida 

√

√

√

In the phywords "Mappear o

Georgia 

√

√

√

In the phywords "Bappear o

Hawaii 

√

√

√

In the phywords "Bmust appMandateAnticonv

Idaho 

√

√

√

Physician by checkthe presc

Illinois 

√

√

√

Sign the labeled "M"Dispens

Indiana 

√

√

√

Sign the labeled "M"Dispens

Iowa 

√

√

√

Physician Pharmacsubstitute

Kansas 

√

√

√

In the phywords "Dappear o

Kentucky 

√

√

√

In the phywords "Dappear o

Louisiana 

√

√

√

Physician by checkor DAW" 
Maine 

√

√

In the phywords "D"Brand", appear o

Maryland 

√

√

√

Physician Pharmacsubstitute

Massachusetts 

√

√

In the phywords "Non the pr

Michigan 

√

√

√

In the phywords "D"DAW" mprescripti

Minnesota 

√

√

√

In the phywords "D"DAW" mprescripti

Mississippi 

√

√

√

Physician Pharmacsubstitute

Missouri 

√

√

√

Sign the labeled "M"Dispens

Montana 

√

√

√

In the phywords "Bmust app

Nebraska 

√

√

√

In the phywords "Dor similar the presc

Nevada 

√

√

√

In the phywords "Dappear o
New 

Hampshire 

√

√

√ Physician 

is Medica

New Jersey 

√

√

√

Physician option "Dprescripti

New Mexico 

√

√

√

In the phywords "Nmust app

New York 

√

√ In the phy

must app

North Carolina 

√

√

√

Sign the labeled "M"DispensTherapedispense

North Dakota 

√

√

√

In the phywords "Bappear o

Ohio 

√

√

√

In the phywords "D"DAW" mprescripti

Oklahoma 

√

√

√

Physician Pharmacsubstitute

Oregon 

√

√

√

In the phywords "Nappear o

Pennsylvania 

√

√

√

Physician Pharmacsubstitute
Rhode Island 

√

√

√

In the phywords "DNecessaprescripti

South Carolina 

√

√

√

Sign the labeled "M"Dispens

South Dakota 

√

√

√

In the phywords "Bappear o

Tennessee 

√

√

√

In the phywords "Dor other lappear o

Texas 

√

√

√

In the phywords "BMedically the presc

Utah 

√

√

√

Sign the labeled "M"Dispensphysician"Dispensthe presc

Vermont 

√

√

√

In the phywords "Bsubstitutiprescripti

Virginia 

√

√

√

In the phywords "Bappear o

Washington 

√

√

√

Sign the labeled "M"Dispens
West Virginia √ √ √

In the phywords "Bmust app

Wisconsin √ √ √

In the phywords "Nmust app

Wyoming √ √ √

In the phywords "Bmust app

From Epilepsy.com/Professionals. State Laws or Statutes Governing Generic Substitution by Pharmacists. 4/25/2

http://professionals.epilepsy.com/page/statutes_by_pharmacists.html.