Abstract
Substituting generic for brand name drugs whenever possible has been proposed to control prescription drug expenditure growth in the United States. This work investigates two types of state laws that regulate the procedures under which pharmacists substitute bioequivalent generic versions of brand name drugs. Mandatory substitution laws require pharmacists to use the generic as a default, and presumed consent laws allow them to assume that the patient agrees to the substitution. Both situations can be overruled by the patient. Using plausibly exogenous changes in states' laws, we use difference-in-differences and a discrete choice model to show that although the mandatory switching laws have little effect, the presumed consent laws reduce consumers' probability of purchasing brand name drugs by 3.2% points. The differential effectiveness of the laws is likely caused by pharmacists' profit motives. These results offer important implications for policies that seek to reduce drug expenditures by incentivizing the use of generic drugs.