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Understanding Why Brand-Name Drugs Cost More

October 6, 2016

In general terms, brand-name drugs are medications that have patent protection, meaning that only the company holding the patent has the legal right to manufacture the drug for the duration of the patent protection.

About patent protection

Pharmaceutical companies often elect to pursue patent protection because the creation of a new medication can take years of research, testing, and regulatory approval with no guarantee of success. The process may cost a company tens of millions of dollars, creating a strong financial interest for pharmaceutical companies to protect their patent rights on medication.

Once a patent on a medication expires, generic forms of the brand-name drug are often created. A generic drug is identical in effectiveness to its corresponding brand-name drug, since it has to have the same active ingredients, strength, dosage, form, and route of administration as brand-name drugs already approved by the FDA. However, consumers should be careful to ask their doctor or pharmacist if they are receiving a generic form of their brand-name drug or a generic drug within the same drug class in place of their brand-name drug. You should always consult with your physician prior to switching medications or starting the administration of any new prescription drugs.

Medicare Part D and brand-name drugs

Medicare beneficiaries who desire prescription medication coverage may wish to enroll in a Medicare plan that provides prescription drug coverage. Stand-alone Medicare Part D Prescription Drug Plans are offered by Medicare-approved private insurance companies and can be added to Original Medicare, Part A and Part B. Another type of plan that provides Part D prescription drug coverage is a Medicare Advantage Prescription Drug plan (MA-PD). Medicare Advantage Prescription Drug plans combine the benefits of Medicare Part A and Part B (with the exception of hospice care which continues to be covered by Part A) and Medicare Part D drug coverage into a single plan.

Stand-alone Medicare Part D Prescription Drug Plans and Medicare Advantage Prescription Drug plans share some benefit features. Both contain formularies, which are lists of covered prescription drugs. A Medicare plan’s formulary must include a range of drugs from the most commonly prescribed drug classes and categories. Often Medicare plans offering prescription drug coverage have five levels (sometimes called tiers) of prescription drug coverage, including non-preferred generics, preferred generics, non-preferred brands, preferred brands, and specialty drugs.

It’s not uncommon for stand-alone Medicare Part D Prescription Drug Plans and Medicare Advantage Prescription Drug plans to promote the use of generic equivalent prescription drugs when medically appropriate, given the lower cost of these medications. Preferred prescription drugs are defined in the formulary as medications that are discounted by the manufacturer. A plan’s formulary may include preferred generic medications and preferred brand-name medications. Specialty prescription drugs include the more costly, unique medications used to treat conditions such as cancer and multiple sclerosis. Specialty medications are usually still under patent protection, and therefore generic equivalent prescription drugs are not available. Each prescription drug tier may have different copayments and coinsurance amounts. These cost-sharing amounts can also vary by plan.

If you take an expensive brand-name medication that does not have a generic equivalent, you should discuss your options with your doctor, and ask your pharmacist if there are less expensive alternative medications covered by your insurance plan. Don’t make any substitutions without your prescribing doctor’s approval. If your doctor determines that you need a brand-name drug that’s not covered by your plan, you may be able to file for a tiering exception to ask your plan for a lower copayment.

This information is provided for educational purposes only. It is not to be used for medical advice, diagnosis or treatment. Consult your doctor if you have questions or concerns.