Substitution laws, insurance coverage, and generic drug use

Abstract

This study examined the role of various policies (drug product substitution laws) that are usually motivated by cost containment objectives of insurers in facilitating entry by generic firms. Using data for six Canadian provinces over the years 1981-1988, we evaluated the impact of specific aspects of substitution laws on the level of generic use. We find that formularies and the passage of time are not significant determinants of substitution levels. Legal liability, mandatory product selection, deductible and co-payment schemes, and consumer awareness were found to be important variables. Price responsiveness of generic drugs is indicated but the evidence is not strong.