On March 28, the American Enterprise Institute (AEI) released a report finding that increased use of generic drugs in Medicaid could have saved states and the federal government a combined $329 million in 2009.  The report found that, in 2009, Medicaid paid $1.5 billion for 20 popular brand-name drugs that have generic equivalents.  The authors estimate that opting for those brand-name drugs increased costs by approximately 20 percent.  Noting that the national health care reform law’s Medicaid expansion could add 16 million beneficiaries to the program, the report suggests that the potential for savings through increased use of generics is substantial.

From the report:

The current fiscal crisis facing state and federal budgets is, as a share of GDP, the largest in recent history. Federal deficits combined with aggregate state budget deficits may total over $1.6 trillion in fiscal year 2011. Given these pressures and the added burden of recent health care reform legislation that will add 16 million new enrollees to Medicaid rolls by 2019, there is a clear and obvious need to identify potential savings opportunities to address budget pressures, particularly as they relate to health care spending. While some policymakers have advocated wholesale Medicaid reform, there are also intermediate opportunities for considerable savings within the existing program framework.

Full report: Overspending on Multi‐Source Drugs in Medicaid (PDF | 313.16KB)

American Enterprise Institute.  (2011).  Overspending on multi-source drugs in Medicaid.  Brill, A.