Medicare Part D’s Effect on Evergreening, Generics, and Drug Prices

The brief’s key findings are:

• Medicare Part D, introduced in 2006, has clearly helped seniors by expanding drug coverage, but a key question is how it has affected the cost of drugs.

• By boosting demand and shifting market power from manufacturers to insurers, Part D could affect the behavior of both brand-name and generic drug producers.

  • Brand-name firms could be more likely to maintain monopoly power by making small changes to their drugs (“evergreening”); and

  • Generic firms – with no such leverage – might be less likely to introduce alternatives due to a greater loss of bargaining power to insurers.

• The analysis finds that Part D has, indeed, increased evergreening and reduced generic entry, and both effects have put some upward pressure on drug prices.

• Overall, though, Part D has kept drug prices lower than they otherwise would have been.

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