Prescription Drug Costs and the Generic Dispensing Ratio

BACKGROUND: The generic dispensing ratio (GDR)-the number of generic fills divided by the total number of prescriptions-is a standard performance metric on which pharmacy benefit designs and their managers are routinely evaluated. Higher GDRs are considered important because they consistently produce lower prescription drug costs. OBJECTIVES: To (a) quantify the relationship between GDR and gross pharmacy expenditures and (b) distinguish pharmacy cost savings realized from brand-to-generic conversion from those due to brand drug utilization decreases. METHODS: This study was a longitudinal, retrospective analysis of paid pharmacy claims and insurance eligibility information for 548 employers covering nearly 14 million members. Data were from the period January 1, 2007, through December 31, 2009, aggregated quarterly. In a linear fixed effects model controlling for plan membership demographics and time trends, percentage changes in gross pharmacy expenditures per member per quarter (PMPQ) were associated with changes in GDR. A second model estimated the association of GDR with gross pharmacy cost, holding total drug utilization constant. All claims counts were adjusted to 30-day equivalents, and expenditures were log-transformed. RESULTS: Mean generic claims PMPQ increased by 18.4% during the study period, from 2.01 in 2007 Q1 to 2.38 in 2009 Q4. Conversely, brand claims PMPQ decreased by 21.0%, from 1.76 in 2007 Q1 to 1.39 in 2009 Q4. As a result, mean GDR per plan increased by 9.8 percentage points or a relative change of 18.2%, from 53.9% in 2007 Q1 to 63.7% in 2009 Q4. Over the 3 years, average gross pharmacy costs PMPQ increased by 14.0% from $242 to $276. The relationship between GDR and gross pharmacy expenditures, estimated in the linear fixed effects multivariate models, varied depending upon whether or not total utilization was controlled. In the first model, which did not control for total utilization, each percentage point increase in GDR was associated with a 2.5% reduction in gross pharmacy expenditure. Holding total utilization constant, the reduction in gross pharmacy expenditure for each percentage point increase in GDR was 1.3%. CONCLUSIONS: Prescription drug cost savings are realized with increases in GDR. During 2007-2009, each 1 percentage point increase in GDR was associated with a drop of 2.5% in gross pharmacy expenditures. Slightly more than one-half of the savings was derived from the lower drug prices enjoyed with brand-to-generic conversions. The remaining savings, however, were attributed to reduced brand drug utilization. Pharmacy benefit managers and plan sponsors should exercise care to ensure that increases in GDR do not represent reductions in appropriate medication use.