State Medicaid programs missed $220 million in uncaptured savings as generic fluoxetine came to market, 2001-05.

Patent expiration of brand-name pharmaceuticals creates opportunities for large savings for state Medicaid programs because generic versions of medications frequently represent a lower-cost alternative. State Medicaid programs that quickly recognize the availability of generics and adjust their drug payments in response to falling market prices can obtain the greatest benefit. We examined one such case: the movement to generic fluoxetine following patent expiration for Prozac, a widely prescribed antidepressant and an expensive drug for Medicaid. We found large differences in states' responses to generic availability. States took between two and ten calendar quarters to reach 90 percent use of generic rather than brand-name fluoxetine and four to eight quarters to achieve a 50 percent decrease in reimbursement per pill. We estimated that states failed to realize $220 million in uncaptured savings during 2001-05. By coordinating their efforts, perhaps with federal help, states could gain access in a more timely way to market prices for generic drugs and, hence, take greater advantage of the savings that those drugs offer.