Department of Health and Human Services
 

OFFICE OF 

INSPECTOR GENERAL 

GENERIC DRUG UTILIZATION IN 


THE MEDICARE PART D
 

PROGRAM
 

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. 
 

Δ EXECUTIVE SUMMARY 

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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E X E E X E CUTIVE S U MMAR Y 
 

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 classes—antiulcer/gastrointestinal preparations, 

cardiovascular preparations, lipotropics, and 

pyschostimulants/antidepressants—plans’ 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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EXECUTIVE SUMMARY 

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. 

 OEI-05-07-00130 

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 plan’s 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 CMS’s calculation of generic 

drug utilization and suggested that differences may be because of CMS’s 

GENERIC DRUG UTILIZATION IN THE MEDICARE PART D P ROGRAM iii 
 

 

EXECUTIVE SUMMARY 

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 CMS’s 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 

CMS’s 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. 

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Δ TABLE OF CONTENTS 

EXECUTIVE SUMMARY ..................................... i 
 

INTRODUCTION ........................................... 1 
 

FINDINGS ................................................ 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 
 

CONCLUSION ............................................ 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 
 

ACKNOWLEDGMENTS .................................... 30 
 
 

 

Δ INTRODUCTION 

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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INTROD U C T I O N 

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 drug’s 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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INTRODUCTION 

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 $29.82—a 

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 plan’s 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. 

 OEI-05-07-00130 

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). 

GENERIC DRUG UTILIZATION IN THE MEDICARE PART D P ROGRAM 3 
 

 

 

INTRODUCTION 

Beneficiaries are responsible for the full cost of drugs not included on 

their Part D plan’s 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 

plan’s formulary. In 2007, during the first 90 days of a beneficiary’s 

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 

 OEI-05-07-00130 

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. 

GENERIC DRUG UTILIZATION IN THE MEDICARE PART D P ROGRAM 4 
 

 

 

 

 

INTROD U C T I O N 

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_40000873/25/19/81829004MedicarePartDTheFirstYear.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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INTROD U C T I O N 

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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INTRODUCTION 

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 FDA’s 

National Drug Code (NDC), a three-part universal identifier that 

specifies the drug’s 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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INTRODUCTION 

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 

Contract PDP 8 1,544,259 

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 

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INTRODUCTION 

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. 

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INTRODUCTION 
 

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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INTROD U C T I O N 

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 President’s Council on Integrity and 

Efficiency and the Executive Council on Integrity and Efficiency. 

O E I - 0 5 - 0 7 - 0 0 1 3 0 GENERIC DRUG UTILIZATION IN THE MEDICARE PART D P ROGRAM 11 
 

Δ 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 

are dispensed when generic 

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 

Median Plan 

Generic Drug 

Substitution Rate 

Lowest Plan 

Generic Drug 

Substitution Rate 

Highest Plan 

Generic Drug 

Substitution Rate 

Range of Plan Generic 

Drug Substitution 

Rates in the Middle 

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. 

 O E I - 0 5 - 0 7 - 0 0 1 3 0 GENERIC DRUG UTILIZATION IN THE MEDICARE PART D P ROGRAM 12 
 

 

F I NDING S 

See Table 3 for more details on MA-PD and PDP generic drug 

substitution rates. 

Table 3: Generic Drug Substitution Rates for MA-PDs and PDPs During the First 

Two Quarters of CY 2006 

Median Plan 

Generic Drug 

Substitution Rate 

Lowest Plan 

Generic Drug 

Substitution Rate 

Highest Plan 

Generic Drug 

Substitution Rate 

Range of Plan Generic 

Drug Substitution 

Rates in the Middle 

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 substitution 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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F I NDING S 

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 

Therapeutic Class 

Median Plan 

Generic 

Drug 

Substitution 

Rate 

Minimum 

Plan Generic 

Drug 

Substitution 

Rate 

Maximum 

Plan Generic 

Drug 

Substitution 

Rate 

Percentage Point 

Difference Between 

Minimum and 

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 

preparations 81% 34% 100% 66% 35,225,704 

PsychostimulantsAntidepressants 93% 43% 100% 57% 20,462,115 

Narcotic analgesics 96% 48% 100% 52% 17,275,975 

Antiulcer/gastrointestinal 

preparations 99% 50% 100% 50% 14,543,189 

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. 

Under Part D, 37 percent of prescriptions were 

written for drugs that have no generic 

substitutes 

Single-source drugs have no 

generic drug substitutes. For 

Part D, single-source drugs 

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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FINDINGS 

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 

Single-Source 

Drug-Prescribing 

Rate 

Lowest Plan 

Single-Source 

Drug-Prescribing 

Rate 

Highest Plan 

Single-Source 

Drug-Prescribing 

Rate 

Range of Plan Single-Source 

Drug-Prescribing Rates in 

the Middle 50 Percent of 

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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F I NDING S 

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 highest single-source drug-prescribing rate had very low enrollment and less than 50 claim 

submissions. 

Source: OIG analysis of January-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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FINDINGS 

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 

Therapeutic Class 

Median Plan 

Single-Source 

Drug-Prescribing 

Rate 

Minimum Plan 

Single-Source 

Drug-Prescribing 

Rate 

Maximum Plan 

Single-Source 

Drug-Prescribing 

Rate 

Percentage 

Point 

Difference 

Between 

Minimum and 

Maximum Plan 

Rate Total Claims 

Antiulcer/gastrointestinal 

preparations 

53% 0.48% 100% 99.5% 14,543,189 

Cardiovascular 

preparations 23% 1% 100%* 99% 35,225,704 

Lipotropics 80% 4% 100% 96% 24,103,932 

PsychostimulantsAntidepressants 37% 4% 100% 96% 20,462,115 

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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F I NDING S 

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 

Median Plan 

Generic Drug 

Utilization Rate 

Lowest Plan 

Generic Drug 

Utilization Rate 

Highest Plan 

Generic Drug 

Utilization Rate 

Range of Plan Generic 

Drug Utilization Rates in 

the Middle 50 Percent of 

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_40000873/25/19/81829004MedicarePartDTheFirstYear.pdf. Accessed on August 16, 2007. 

O E I - 0 5 - 0 7 - 0 0 1 3 0 GENERIC DRUG UTILIZATION IN THE MEDICARE PART D P ROGRAM 18 
 

 

F I NDING S 

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 

First Two Quarters of CY 2006 

Median Plan 

Generic Drug 

Utilization 

Rate 

Lowest Plan 

Generic Drug 

Utilization 

Rate 

Highest Plan 

Generic Drug 

Utilization Rate 

Range of Plan 

Generic Drug 

Utilization Rates in 

the Middle 

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 

O E I - 0 5 - 0 7 - 0 0 1 3 0 GENERIC DRUG UTILIZATION IN THE MEDICARE PART D P ROGRAM 19 
 

 

 

 

F I NDING S 

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% 

70.00% 

60.00% 

50.00% 

40.00% 

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. 

Plans' Generic Drug Utilization Rates 

O E I - 0 5 - 0 7 - 0 0 1 3 0 GENERIC DRUG UTILIZATION IN THE MEDICARE PART D P ROGRAM 20 
 

EXECUTIVE SUMMARY 

 

 

Δ CONCLUSION 

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 classes—antiulcer/gastrointestinal preparations, 

cardiovascular preparations, lipotropics, and pyschostimulants/ 

antidepressants—plans’ 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 plan’s 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. 

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CONCLUSION 

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 CMS’s 

calculation of generic drug utilization and suggested that differences 

may be because of CMS’s 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 CMS’s 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 CMS’s comments is included in Appendix C. 

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Δ APPENDIX~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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APPENDIX ~ 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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APPENDIX ~ 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 

events 175,999 0% 

No drug product information 2,511,589 1% 

Claims filed for beneficiaries to multiple Part D 

plans 4,306,138 1% 

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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Δ APPENDIX~B 

Table 11: Median Rates for Generic Drug Utilization Indicators by Types of 

Medicare Advantage Prescription Drug Plans 

MA-PD Plan Type 

Median Generic 

Drug Substitution 

Rate 

Median 

Single-Source 

Drug-Prescribing 

Rate 

Median Generic 

Drug Utilization 

Rate 

1876 Cost Plan 90% 33% 61% 

Continuing Care Retirement 

Community 87% 41% 51% 

Health Maintenance Organization 

(HMO)/HMO Point of Service 

(HMOPOS) 

90% 32% 61% 

Local Preferred Provider 

Organization (PPO) 87% 36% 56% 

Program of All Inclusive Care for 

the Elderly (PACE) 91% 34% 59% 

Other* 89% 34% 60% 

Private Fee-for-Service (PFFS) 87% 35% 57% 

Provider Service Organization 

(PSO) 91% 32% 62% 

Regional PPO 87% 37% 56% 

Social Health Maintenance 

Organization (SHMO) 90% 27% 66% 

* 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. 

 O E I - 0 5 - 0 7 - 0 0 1 3 0 GENERIC DRUG UTILIZATION IN THE MEDICARE PART D P ROGRAM 26 
 

 

 

 

APPENDIX ~ 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 plan’s 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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AGENCY COMMENTS 

Δ APPENDIX~C 
 

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AGENCY COMMENTS 
 

 

Δ APPENDIX~D ACKNOWLEDGMENTS 

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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