Are Generic Drug Prices Really Rising?

There has been a lot of news attention recently about the cost, not only of brand name, recently released revolutionary drugs like Gilead Pharmaceutical’s Harvoni Hepatitis C pill but of overall generic prices. Diane Rehm did a show on the topic called The Debate Over Drug Pricing after Turing Pharmaceuticals increased the price of Daraprim, a generic antiparasitic, from $13.50 to $750 a pill.

However the data actually shows that overall, Americans pay less for generic drugs than in Canada, Germany, Australia, France, Netherlands, Switzerland, and the U.K. A review by the U.S. Department of Health & Human Services concludes,

“In fact, about two-thirds of generic products appear to have experienced price declines in 2014. Although the generic drug market as a whole is quite competitive, some segments of the market have experienced large price increases. These spikes are on one hand troubling in that they disadvantage particular patient groups but also sufficiently limited so they exert no sizable influence on overall drug spending. Some explanations for these occurrences include: small markets with limited entry; the impact of mergers, acquisitions, and market exits; the ability to obtain new market exclusivities; and distribution activities. These problems apply to relatively small segments of the market and, while they lead to increased costs in certain therapeutic areas, they have little influence on overall spending increases.”

So basically, in areas of the generic drug market where there is competition, prices are held low- often much lower than in countries which negotiate drug prices. However, in certain situations, like market areas with a small population of patients, there is no (or not enough) competition to keep specific drug prices in check. That’s what happened with Daraprim, which treats a parasite that infects mainly those with cancer or infected with HIV/AIDS. 

However, if we made it easier for drug manufacturers to enter generic drug markets where there are only one or two competitors this would bring down costs fast in these market segments where generics are still prices too high. Currently the FDA approval process for generic drugs is timely and costly and it’s doesn’t make financial sense for drug manufacturers to go through it to enter a limited market segment. Steps could be taken to shorten the generic drug approval process. Another solution could be allowing the importation of drugs from other countries. So patients could determine whether it’s cheaper to price up the drug at their local pharmacy or to purchase the price from a Canadian pharmacy, for example.

The review by the U.S. Department of Health & Human Services (USDHHS) states that “Use of generic drug leads to substantial cost savings for patients and the health care system, reflected in the fact that 88 percent of dispensed prescriptions are for generic drugs, yet they account for only 28 percent of total drug spending.” As you can deduce from this statement, Americans pay a lot for brand name medications.

There are many reasons for this fact. Once granted a patent, pharmaceutical companies are granted exclusivity for their drug. That means that for a period of time (about 7 years), the pharmaceutical company is the only company that can make or sell that drug. This means that the drug company can set the price. The reason why we grant exclusivity is to encourage pharmaceuticals (and all other inventors) to keep investing time and money into research and development. The reward is exclusivity. Stay tuned for my post on brand name drug costs. You can find it here.