Generic Drug Substitution Regulations:
Legal Implications for Pharmacists

In the past twenty years, the use of the term "generic" has become commonplace, especially as it relates to pharmaceuticals. However, the road to generic drug production and consumer usage in the United States has been one of a struggle, even though generic drugs provide the same medicine and the same therapeutic results as their brand-name counterparts but at a significantly lower cost.¹ This monograph will explore the legal limitations involved in bringing generic drugs into today's marketplace, the economic impact of generic usage, as well as methods by which pharmacists can successfully assist patients in utilizing generic drug substitutes.

OVERVIEW ON THE UTILIZATION OF GENERIC DRUGS
Retail sales of generic prescription drugs in the US continue to rise. In 2001, retail sales of generic prescription drugs totaled $11.1 billion and rose to $54.1 billion in 2006.^2,3 In comparison, brand-name drugs for 2001 totaled $121 billion and by 2006 totaled $220.6 billion.^2,3 While generic drugs currently account for about 63% of all prescriptions filled and equal more than a billion prescriptions filled annually, they consume only a small fraction of the total drug costs in the US.² The popularity of these drugs stems from the fact that patients, as well as managed care plans, can save a great deal of money with generic drugs---from 30% to 80% of the cost of branded pharmaceuticals.²

Although cost containment has been at the center of the controversy surrounding the importation of prescription drugs, a study by the National Opinion Research Center at the University of Chicago reported that people living in Canada pay 37% more for generic drugs than do people living in the US.⁴ Generic drugs are a win-win situation for the American consumer.

The current abundance of generic drugs has not always been available to Americans. For years, controversy existed over whether a generic drug constituted a new drug, which would require a new drug application (NDA) being filed with the US Food and Drug Administration (FDA) prior to marketing. For a period of time, the FDA generally recognized generic drugs as safe if the pioneer drug had a history of being safe and the generic drug manufacturer submitted an abbreviated new drug application (ANDA). However, as part of a federal program to ensure both safety and efficacy, the Drug Efficacy Study Implementation program initiative shifted the government's view of generic drugs. This new policy shift resulted in litigation that affirmed the FDA's authority regarding the determination of a new drug.

The FDA began to take the position in the 1970s that generic drugs warranted a new drug status based on safety and efficacy concerns. The FDA assumed the position that until the methods of manufacturing and proof of bioequivalency were answered, any generic drug would hold the status of a new drug. Generic drug manufacturers held the position that because the active ingredients in the brand-name drugs had been proven safe and effective, the FDA had no authority to withhold approval of generic equivalents. After the federal appellate courts reached conflicting decisions, the US Supreme Court took up the matter. In United States v. Generix Drug Corporation, the Supreme Court ruled that a generic drug was a new drug and subject to FDA approval.⁵ The ruling rocked the generic drug world for both manufacturers and consumers and made evident that a long, laborious, and expensive process of preparing and submitting an NDA was about to begin that would significantly alter the quick entry of generic drugs to the marketplace.

Because of this ruling, the US Congress took up the matter in 1984 and passed legislation known as the Drug Price Competition and Patent Term Restoration Act, more commonly known as the Hatch-Waxman Act.⁶ The act allowed generic drug manufacturers to utilize the methods in place prior to the controversy in order to get FDA approval for generic drugs, reinstituting the ANDA process. The generic drug manufacturer would need to submit sufficient information demonstrating that the generic drug's bioavailability and bioequivalence were significantly equal to that of the brand-name drug.

A generic drug must have between 80% and 125% bioequivalency to the brand-name drug---a window of 20% less or 25% greater potency.⁷ Such a variation will typically not make a difference in terms of efficacy or toxicity. However, if the total drug absorbed or peak absorption falls outside the 80% to 125% bioequivalency window, the generic drug is not approved.

The generic drug manufacturer would also need to verify that acceptable manufacturing methods and controls existed. In return for these concessions to the generic drug manufacturers, the brand-name drug manufacturers received incentives to develop new drugs in the form of patent-term extensions or market exclusivity for two to five years in addition to that provided under patent law.

MEDICARE PART D
A dramatic increase in the number of generic drugs in the marketplace followed passage of the Hatch-Waxman Act. Recently released data indicate that more Americans are cutting their prescription drug costs by switching to generic drugs. New data from the Centers for Medicare and Medicaid Services (CMS) find that generic drug use is especially high among those in the newest government prescription program, the Medicare drug benefit plan. Evidence shows that generic drugs account for 59.6% of the drugs dispensed to participants in the Medicare Prescription Drug Plans (PDPs) and Medicare Advantage (MA) plans through the third quarter of 2006.⁸ These new Medicare data mark the third consecutive quarter of growth in generic drug utilization among those in the Medicare prescription drug program. This increase in generic drug use results in savings to consumers as well as costs to the Part D program itself.^4,8 CMS officials contend that the program cuts prescription costs to participants far more than originally expected.⁴

This information affects Medicare beneficiaries who will fall into the "donut hole," the gap within the plan in which beneficiaries have no prescription drug coverage even though they pay Medicare premiums.⁹ Such beneficiaries in 2006 had to pay 100% out-of-pocket of their total costs of medical expenditures between $2,250 and $5,100 before receiving catastrophic benefits.¹⁰ Gap coverage in 2007 occurred after a beneficiary and the respective plan together had spent $2400 in prescription drug costs; the gap will end when these costs exceed $5,451.⁹ Seniors will be motivated to switch under Part D because less expensive drugs will cause them to reach the "donut hole" less quickly before having to assume the full cost of the drug while in the hole. ⁹

Medicare plans encourage the use of generic drugs via tiered formularies, under which generic drug copays are typically far lower than copays for branded alternatives. Tiered formularies determine how much, if any, copay or coinsurance a Medicare beneficiary will have to pay for a drug. Plans differ in the number of tiers they use. Most prescription drug plans use three tiers; some use four. In general, tier one drugs are generics that cost the patient the least out-of-pocket costs. Some tier one Part D plans even offer generic drugs for $0 copay. Very low prices as well as information and support for beneficiaries on how they can personally save by using generic versions of their medicine have resulted in increased use of generic drugs by Medicare beneficiaries under the Part D plan.⁴

Tier two drugs are "preferred" brand-name drugs and will cost more than tier one drugs. Tier three drugs are "nonpreferred" brand-name drugs or brand-name drugs that are nonpreferred in much the same way that a doctor might not be included in the list of "preferred" physicians on a managed care plan's roster. These tier three drugs will cost the patient more than tier one or tier two drugs. Tier four drugs may include specialty drugs such as biologics or other high-cost drugs. Plans that have a fourth tier may require their enrollees to pay a percentage of the cost of the drug, possibly 25% or more.¹¹

Because of the importance of generic drugs to the success of the Medicare Part D program, the US Congress introduced legislation in 2007 that would require Medicare Part D prescriptions to be filled with a generic drug unless a brand-name drug is determined to be "medically necessary."¹² With the passage of Medicare Part D, the federal government has become the largest purchaser of prescriptions drugs in the US. Because of the fiduciary responsibility the government has toward taxpayers, the federal government has an obligation to maximize the efficiency of the benefits offered and reduce unnecessary costs. Increased aggressiveness in the use of generic drugs affords one method to assure cost efficiency.

INITIATIVES BY GOVERNMENT AGENCIES/THIRD-PARTY PAYERS
Both private payers and the US government have had tremendous success in implementing consumer utilization of generic drugs. On average in state Medicaid programs, generic drugs have been dispensed 89% of the time when they were available.⁹ Private sector usage of generic drugs hovers around 90% when they are available.⁹ Both government agencies and third parties, such as insurance companies and pharmacy benefit managers, have instituted a variety of initiatives to achieve such generic drug usage. Effective methods in increasing generic drug utilization include tiered payment schedules for brand-name drugs versus generic drugs, encouraged prescribing of multisource drugs (which have generic equivalents), counter-detailing of brand-name products, and step-therapy requirements, which is the practice of beginning drug therapy for a medical condition with the most cost-effective and safest drug therapy and progressing to other more costly or risky therapy, only if necessary. The ultimate method is a mandate requiring generic drug substitution, should a generic drug be available.

ECONOMIC IMPACT
Economics is an important factor in selecting formulary products, developing treatment guidelines, and designing prescription drug benefit programs.¹³ Although reducing the cost of prescription drugs may be an important issue, the health outcome of the patient remains paramount. If, however, one only considers the effectiveness of a generic versus a brand-name drug and one verifies that the generic drug is chemically and therapeutically equivalent to its brand-name counterpart, then cost minimization becomes a priority. Obviously, generic drug substitution proves to be an attractive option for cost containment by saving money without adversely affecting consumer health.

When considering economics, one must view the totality and the magnitude of the issue. Over $250 billion is spent annually on prescription drugs in the US.¹⁴ Growth in spending for drugs has outpaced spending growth in all other sectors of the health care system in the past decade and is predicted to continue to do so. The cost savings made possible by greater use of generic medications are well documented. Although generic drug use accounts for 56% of prescriptions filled in the US, generic drugs represent less than 13% of all drug costs. One study has shown that merely switching prescriptions from a brand-name drug to a molecularly identical generic drug could lead to an 11% reduction in overall drug costs.¹⁴

Another study has shown that increasing generic drug use among commercially insured members in just six therapeutic classes could result in savings of over $20 billion annually in the US.¹⁴ Substituting less expensive generic drugs for brand-name drugs can reduce the cost of prescription drugs by tens of billions of dollars a year in the US. Savings would benefit employers, state governments, and plan members. Consumers would pay a lower copayment for generic medications, saving, on average, ten dollars per prescription, compared with branded medications.¹⁵

Future savings will be monumental considering brand-name drugs coming off patents in 2007 and 2008 are valued at $27 billion and $29 billion, respectively.²

VARIABLES IN DRUG SUBSTITUTION TERMINOLOGIES
In the debate over the cost of prescription medicines, confusion exists between two terms: generic substitution and therapeutic interchange. Although both methods of substitution have the potential to lower prescription costs, only generic substitution assures that the patient receives exactly the same prescription as ordered by the physician.¹⁶

A generic drug is the same as its brand-name counterpart but is usually dispensed under the chemical name of the active ingredient.¹⁶ Many states permit such a substitution as long as the state-specific guidelines are followed.

Therapeutic interchange, in contrast to generic substitution, occurs when a pharmacist substitutes a chemically different drug for the drug that was prescribed. The drug substituted by the pharmacist typically belongs to the same pharmacologic class and/or to the same therapeutic class. However, since the two drugs have different chemical structures, adverse outcomes for the patient can occur. ¹⁷

Although virtually all states prohibit such substitution without prescriber authorization, circumstances do occur in which such a substitution may result. In an institutional setting a prescriber may be required, as a condition of medical staff approval, to acquiesce in allowing therapeutic interchange when the hospital formulary restricts certain pharmaceuticals and the prescriber has ordered a drug not currently on the formulary. In such a case, prior directives may require the pharmacist to dispense a different drug via therapeutic interchange and place a note in the medical record conveying to the prescriber the drug substituted and the reason why.

THE ORANGE BOOK
For a generic drug substitution to be appropriate, the pharmacist needs to ensure that the substituted drug is bioequivalent to the prescribed drug. To enable pharmacists to compare generic drugs with brand-name drugs, the FDA began publishing a book in 1979 entitled Approved Drug Products with Therapeutic Equivalence Evaluations. This book came to be known as the Orange Book because of its orange cover. The Orange Book refers to drugs as having "therapeutic equivalence" when those drugs have the same active ingredient, strength, and dosage form and produce the same clinical effect and safety as the brand-name drug.⁷ This phrase is important, since many states will allow substitution only if the drug to be substituted rates as therapeutically equivalent in the Orange Book.^{1 8}

Pharmacists should recognize that a drug considered therapeutically equivalent does not allow for therapeutic substitution, only generic substitution, as previously discussed.

The Orange Book does not include all drug products, exempting drugs in existence prior to 1938, such as aspirin, codeine, and digitalis. Certain generic drugs approved between 1938 and 1962 are also exempt. Because of these exemptions, therapeutic equivalence data are not available for all drugs currently on the market.

Today, the Orange Book includes all new drug approvals by the FDA. Initially, no equivalence evaluation of a patent-protected drug will exist, because no other product will be available with which to compare it. Only with an approved generic version of that product (after patent expiration) will the innovator rate as bioequivalent with the generic, if so proven.¹⁹

Generic drugs are approved through an ANDA process. The sponsor of a generic drug for approval must submit an ANDA to the FDA, which must include bioequivalence studies, establishing that the generic drug's rate and extent of absorption does not significantly differ from that of the brand-name drug. The generic drug will then be presumed to have the same safety and efficacy as that of the innovator drug. Once approved by the FDA, the Orange Book will list the generic drug and will rate it as bioequivalent with the comparable reference-listed drug.¹⁹

Information in the Orange Book can be accessed through the FDA's Web site (see Online Resources). Generic drug comparisons in the Orange Book are extensive, considering 8,730 of the 11,487 drugs listed have generic counterparts.²

FACTORS TO CONSIDER REGARDING GENERIC DRUG SUBSTITUTION
Clinical Factors
Every drug listed in the Orange Book has a two-letter code. The first letter, A or B, indicates whether the drug is therapeutically equivalent to another pharmaceutically equivalent drug. The "A" designation means that the FDA considers the drug to be the therapeutic equivalent of another pharmaceutically equivalent drug.²⁰ By contrast, the "B" designation means that some actual or potential bioequivalence differences have been identified and, therefore, such a drug cannot be considered therapeutically equivalent with the reference drug. In practical terms, the A or B code indicates whether a drug will produce the same clinical effects and will carry the same risk of adverse events when given to patients under the conditions specified in the labeling. B-rated drugs, while similar to other compounds, should not be considered interchangeable with any other product. Thus, the first letter, whether an A or B, provides essential information for the pharmacist about the potential substitutability of a drug.²⁰

The second letter of the therapeutic equivalence code (A, B, C, D, E, N, O, P, R, S, T, or X) provides information about the dosage form and, in some cases, about the results of the FDA's evaluation of actual or potential bioequivalence problems. In general, however, the second letter enables pharmacists to rapidly assess whether a proposed substitute has the same route of administration in the same dosage as the originally prescribed drug and it may also convey information about whether pharmacokinetic and pharmacodynamic studies have been done to address bioequivalence issues. Pharmacists need not concern themselves with this second letter when making bioequivalence comparisons of drug products.¹⁹

Pharmacists should understand that an "AB" rating is the most common designation found in the Orange Book. This rating means that the identified drug has been proven to meet the necessary bioequivalence requirements through in vivo and/or in vitro testing compared with a reference standard currently approved by the FDA. An AB rating, therefore, indicates the drug is considered therapeutically equivalent to other drugs coded as AB under that same heading. ²⁰

Legal Factors
Generic and therapeutic drug substitution laws in the US vary from state to state. All states have passed laws or regulations permitting generic drug substitution, but therapeutic drug interchange is still relatively restricted due to opposition from mainly brand-name pharmaceutical companies and prescribers.⁹ In general, with regard to generic drug substitution, state laws either permit the pharmacist to substitute or mandatorily require the pharmacist to substitute a generic version of the prescribed drug if certain prescription requirements are met.²¹

Some litigation today centers on claims that brand-name companies are manipulating the Orange Book listing process by petitioning the FDA for a new patent on a previously listed drug just before the original patent is to expire. Under Hatch-Waxman rules, supported by court rulings, generic drug companies must inform the FDA and the brand-name companies whether the new patents will be infringed. At that time, litigation may be initiated. That litigation automatically triggers a delay in the FDA's approval of the generic drug. That delay can last until the courts decide whether the patent is indeed infringed or invalid or, under Hatch-Waxman rules, 30 months after the infringement notification if the courts have not yet acted. The main point is that this approach by brand-name companies adds two to four years to the process of getting a generic drug to the marketplace. The Federal Trade Commission is continuing to investigate whether brand-name companies have abused this process; specifically, listing frivolous or ineligible last minute-patents in the Orange Book simply to cause a delay in generic availability and lengthen the time their patent-protected drug is on the market.²²

Another legal factor is the prescription pads prescribers use to authorize medicines for their patients. These vary from prescriber to prescriber and, likewise, from state to state. Yet, the format of the pad itself can have a profound impact on whether prescribers are more or less likely to prescribe brand-name drugs or generic drugs.²³

Two signatory methods currently in use may either encourage generic drug substitution or prevent it, depending on the viewpoint. In both methods, the prescriber must sign the prescription. The difference between the methods has to do with how the prescriber prohibits substitution by the pharmacist for generic drugs. Some states use prescription pads with the "two-line method." In this method the prescriber signs the prescription either on a line that reads "brand medically necessary" or on a line that reads "substitution allowed." Thus, the line on which the prescriber signs his or her name determines whether the pharmacist may substitute. States utilizing this method include Alabama, Indiana, Mississippi, Missouri, New Jersey, and Washington.²¹

Other states have a one-line method (also called "active substitution method"), in which the prescriber signs the prescription in only one place. If the prescriber just signs his or her name, the pharmacist may substitute and dispense a generic drug. In one-line states, to prohibit substitution the prescriber, in addition to signing the prescription, must take some additional action. This action may take the form of entering the prescriber's initials in a box at the bottom of the prescription form or writing "brand medically necessary" in a designated spot on the prescription or some other variation indicating that substitution is not allowed.⁶ Table 1 lists state-specific requirements.

Economic Factors
Encouraging states to simply redesign their prescription pad forms could provide tremendous savings to public and private health care providers and consumers.²³ For example, prior to 2001 Texas had a two-line prescription pad upon which the prescriber could sign the "brand only" line and override the substitution of a generic drug for the brand-name drug. In 2001, Texas implemented a new pad that required a prescriber to handwrite "brand medically necessary" in order to prohibit generic drug substitution. According to an analysis by the University of Texas, this simple change resulted in an estimated savings of $223 million.²³ Such evidence would seem to support adoption of this type of approach by other states, which could substantially reduce government and consumer drug costs.

The type of formulary used is another economic factor. Cost, safety, and efficacy are universal aspects that determine a drug's inclusion on a formulary.⁹ While some formulary plans, defined as "open," allow for dispensing of a wide variety of drugs, other plans, known as "closed," restrict dispensing and reimbursement to only those drugs listed on the formulary. Most formularies today currently fall in the "open" category as employees and consumers desire greater options in choice of drugs. Nevertheless, although such openness may exist on paper, financial restrictions in the form of cost-sharing mechanisms or tiered pricing schedules may, in effect, be self-imposed formulary restriction or closure.

Third-party payers are frequently utilized in the delivery of prescription services. In more than two thirds of all prescriptions filled, either a public or private insurance health plan is responsible for payment.⁹ In many cases, as previously described, patients often have to pay a portion of the cost for prescription services. The third-party payer designs this cost sharing by the patient to control prescription utilization and costs by making the patient more cost conscious. Forms of cost sharing include a copayment, a deductible, or some form of coinsurance.

Copayments, the most common form of patient cost sharing for prescription drug benefits, require patients to pay a dollar amount every time they receive a prescription drug. Two factors determine the copayment amount: 1) whether a generic drug (if available) or brand-name drug is dispensed, or 2) whether the drug dispensed is on the formulary of the beneficiary's prescription drug plan. Typically, dispensing a brand-name drug when a generic drug is available requires a higher copay for the patient. Likewise, if a patient utilizes a drug not currently on the plan's formulary, a higher copay will also be imposed. By creating such tiered payment plans, third-party payers attempt to reduce overall costs, particularly by encouraging patients to use less expensive generic drugs.

Tiered payment plans are often a point of contention for those involved in their establishment, including the provider of the plan, the employer, the health care professional, and the employee or beneficiary of the plan. Employees typically want broad coverage and low copayments. Employers want healthier employees and reduced expenditures on health care benefits. Pharmacists and other health care professionals want to provide complete and necessary services without limiting pharmaceutical care or earnings. Thus, the providers of these plans find themselves in the unenviable position of trying to address these concerns while at the same time providing an adequate network of participating pharmacies that will provide services at a reasonable cost to plan members. Since third-party administrators pay such a large percentage of the prescriptions dispensed, these concerns regarding tiered-payment plans will likely continue.

ENHANCING COMMUNICATION WITH PATIENTS AND PRESCRIBERS
The marketing of prescription drugs to health care professionals can be pervasive, costly, and extremely consequential for prescribers, patients, and our society as a whole. The pharmaceutical industry spends $12 billion each year on marketing directly to prescribers, for an average of $13,000 per prescriber.²⁴ Free samples account for over half of the industry's marketing budget.²⁴ Once the patient has used the samples, the prescriber will likely prescribe the same medication, and the consumer will continue to use the brand-name drug even if a more cost effective, efficacious drug is available.

More pharmacists are growing increasingly comfortable with dispensing lower-cost generic drugs. ²⁵ This comfort level is evidenced by the continued percentage increase in generic dispensing by pharmacists on a national level.²⁶ However, prescribers still refer to most medications by their brand names, including drugs with generic formulations. Additionally, many prescribers frequently lack knowledge about patients' out-of-pocket cost.¹⁴ These factors may continue to lead to higher than necessary health care costs by promoting the use of brand-name drugs even when a generic alternative is available. Pharmacists have both the knowledge and the position necessary to reduce prescription drug costs to the consumer and to society. Therefore, pharmacists need to share information with other health care professionals and consumers about the safety and availability of generic drug products.

ENCOURAGING UTILIZATION OF GENERIC DRUGS
Education, as the most crucial step in promoting the use of generic drugs, must be directed to both health care professionals and patients.²⁷ Advertisements for generic drugs, unlike those for brand-name drugs, do not inundate health care professionals and patients. Pharmacists have a host of available options to encourage generic drug usage. These options include the Internet (including easily searchable databases for determining generic availability), direct mailings, in-store brochures, communicating with both health care professionals and patients before dispensing the drug, and utilizing newspapers and other media outlets about the benefits of generic drugs. In addition, online pricing tools have also proven to be particularly effective.²⁸

GUIDELINES FOR APPROPRIATE GENERIC DRUG SUBSTITUTION
When generic drug substitution is permitted, the pharmacist has an obligation to substitute appropriately. This obligation stems from the 1994 Code of Ethics of the American Pharmaceutical Association, which states that the "pharmacist promises to help individuals achieve optimum benefit from their medications."²⁹

Pharmacists must become familiar with and maintain awareness of the requirements and guidelines for generic drug substitution as permitted by the state in which they practice. Generic drug substitution is state law and/or regulation specific and should be clearly understood by dispensing pharmacists.

Pharmacists must understand both the purpose for and method of use of the Orange Book. Contemporary pharmacy practice includes the component of ensuring that a substituted generic drug is bioequivalent to the prescribed product. Only pharmacists are aware of the significance of this issue, and they must be familiar with the Orange Book coding system in order to make an appropriate substitution.

Maintaining certain records must accompany the dispensing of a generic drug. These records protect both pharmacists and patients. Documentation of substitution should include the method of authorization, whether by written prescription or verbal patient communication. Pharmacists should also maintain information on which generic manufacturer's product was dispensed, including its tablet/capsule size, shape, and color. This ensures continuity of future dispensing.

Knowing a patient's medical history may also play a vital part in the decision to dispense, or not dispense, a particular medication. For example, the patient whose past seizure control proved erratic until placed on a current medication may need to be informed that changing to another version of that drug may not be prudent at this time.

A RATIONALE FOR SUBSTITUTION
Ultimately, what is best for the patient should be the determining factor for pharmacists regarding generic drug substitution, whether permissive or mandatory. Every decision made may be subject to review at some point. Pharmacists should come to an assurance that the generic drug dispensed is a quality product and is capable of producing the equivalent therapeutic outcome to a brand-name drug.

CONCLUSION
Generic drugs have played an enormous role in effecting positive health outcomes for many years. They provide for cost savings compared with brand-name drugs without compromising bioequivalency. The use of generic drugs will increase as drug patents continue to expire, and pharmacists will play a significant role in this growth.

REFERENCES

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