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

IB#19-14

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.