December 12, 2017
Generic Drugs: Not Always So Cheap

Generic Drugs: Not Always So Cheap

by Berkeley Wellness  

In a recent editorial, Dr. John Swartzberg expressed his preference for older, tried-and-true prescription drugs primarily because their safety and efficacy have been estab­lished—but also because they are usually “cheap generics.” A reader responded to this with a missive entitled “The myth of the low-cost generic.” He pointed out that he recently refilled a prescription for generic hydrocorti­sone suppositories and was told a two-week supply costs $400. A year ago it cost him $5. He checked with other pharmacies and got similarly high prices.

Today, more than 85 percent of U.S. prescrip­tions are for generic drugs, compared to 57 per­cent in 2004. The shift to generics has trimmed hundreds of billions of dollars from the nation’s rising health-care costs by counterbalancing the sky-high prices of new medications.

But drug companies are finding ways to make up for this loss of revenue. While most generics remain inexpensive, huge price increases are becoming more common. Jaw-dropping price spikes for decades-old generics such as doxycycline (an antibiotic) and calcipotriene (for psoriasis) have made headlines, and for good reason. In the most egregious cases, companies like Turing and Valeant have purchased old drugs—such as pyrimethamine (to treat toxoplasmosis) and isoproterenol (a heart drug)—that are produced by a single manufacturer and have raised prices by up to 5,000 percent.

As a general rule, prices for generic drugs go down over time. Once the patent on a brand-name drug runs out, one generic maker is granted exclusive marketing rights, typically for six months, so the price doesn’t drop that much initially. After that, as other generic makers step in, the price can eventually drop 80 or 90 percent or even more. But thanks to mergers of manufacturers of generic drugs, various marketing shenanigans (including possibly price collusion), and regulations that deter the entry of new competitors, prices of many older drugs have been rising, if not soaring.

In 2016, a report by the Government Accountability Office (GAO) looked at nearly 1,400 “established” generic drugs covered by Medicare Part D and found that overall prices declined between 2010 and 2015, but that more than 300 of them had at least one “extraordinary” price increase (meaning an increase of 100 percent or more). Not surprisingly, competition—or rather, the lack of competition—affects generic drug pricing most, according to the GAO, along with factors such as “raw material shortages, production difficulties, consolidation among manufacturers, and a backlog of new generic drug applications awaiting federal review.”

In a study in the Annals of Internal Medicine in August 2017, researchers analyzed more than a billion prescription drug claims for 1,120 generics from 2008 to 2013 to see what effect market competition had on pricing. Not sur­prisingly, drugs that had multiple manufactur­ers had declining prices (–32 percent, on average). Nearly half the drugs had only two makers and a small drop in price (–12 percent). But those with only one maker had rising prices (+47 percent). Keep in mind that this study looked at data only through 2013, so it doesn’t capture the escalation in price goug­ing in the last few years.

“Unless policies are enacted to stabilize generic drug markets in response to a decrease in competition, we may continue to see cases of generic drugs subject to large price increases,” the Annals study concluded.

Also see How Good Are Generic Drugs?