OBJECTIVE: The purpose of this study was to describe the economic impact of generic fluoxetine entry on trends in utilization and costs of new generation antidepressants (Celexa(r), Effexor(r), Luvox(r), Paxil(r), Prozac(r), and Zoloft(r)) within the Texas Medicaid Program. Additionally, diffusion of market share among generic manufacturers following the 180-day marketing exclusivity period was also examined. METHODS: Retrospective prescription claims data from January 2001 through August 2002 were analyzed. Claims were grouped across study agents: 1) Prozac(r), 2) fluoxetine, and 3) other (Celexa(r), Effexor(r), Luvox(r), Paxil(r), and Zoloft(r)) antidepressants. Costs were based on payments to pharmacies. RESULTS: A total of 1,154,565 prescription claims were analyzed. Prior to the introduction of generic fluoxetine, market share for Prozac(r) was 19.0% (10,754 claims) in July 2001. In August 2002, market share for Prozac(r) decreased to 2.2% (1,479 claims), of which, 952 claims (64.3%) were for the Prozac(r) 20mg weekly dose, while market share for "other antidepressants" grew to 86.7% (57,259 claims). Generic fluoxetine market share was 11.0% (7,281 claims) in August 2002. Within the generic fluoxetine market, manufacturers with exclusivity experienced a decrease in market share from 100.0% (7,184 claims) in January 2002 to 63.6% (4,629 claims) in August 2002. The estimated average payment per unit (post-rebate) for Prozac(r) 20mg capsules prior to its patent expiration (January-July 2001), during the 180-day generic exclusivity period (August 2001-January 2002), and after the exclusivity period (February-August 2002) was: $1.89, $1.91, and $1.97 respectively, using an assumed percentage rebate. Similarly, average estimated payment per unit (post-rebate) for fluoxetine 20mg capsules (generic) in the 2 latter periods was: $1.96 and $0.79 respectively. Additional payments related to cost-savings not realized were estimated to be $1,772,677. CONCLUSIONS: Regulations that limit competition within the generic marketplace immediately following branded patent-expiration may result in lost opportunities for savings within publicly-financed prescription programs.