The effect of USA state generic substitution laws on the generic utilization and market competition

Prescribing generic drugs in lieu of brand-name drugs serves as a potential strategy to manage prescription drug costs. This research endeavors to ascertain whether mandatory generic substitution policies enhance the utilization of generic drugs and, consequently, impact market concentration and the average reimbursement prices of prescription medications. As of 2016, 10 states in USA had enforced mandatory generic substitution laws, compelling pharmacists to dispense lower-cost generic drugs to consumers. Conversely, in other states, pharmacists are permitted but not obligated to substitute generic drugs for brand-name ones. We employ a difference-in-differences methodology and analyze Medicaid prescription drug data spanning from 2006 to 2012 to assess the ramifications of these laws. Our findings reveal an augmentation in the use of generic drugs in states with mandatory substitution policies, and we also present evidence suggesting a decrease in the utilization of brand-name drugs. • Utilizing generic medications represents an efficient method for managing prescription drug costs. • Mandatory generic substitution laws require pharmacists to substitutes generic drugs. • We use difference-in-difference approach to show the effect of mandatory substitution law. • Our results show an increase in generic drug utilization with mandatory substitution law.