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Why Are Generic Drug Prices Rising?

Generic drugs are generally much cheaper than brand-name, but that doesn’t mean that generics are inexpensive (or fairly-priced).

Overall, prices for prescription generics have been declining since at least 2010, but high-profile exceptions pose a challenge to conventional wisdom. Generics are not necessarily cheap. Indeed, according Market Watch, between 2010 and 2015, more than 300 generic drugs had at least one price increase of 100% or more. As a result, generics now require as much (if not more) vigilance from payers as do brand-name drugs.

  • The price of digoxin (a commonly prescribed generic heart medication) increased by 2,800% in a single year.

  • Scripta identified a 348% spike in the cost of Olux, a generic topical corticosteroid. The price went from $38.71 to 134.80 (with a high of 169.56), in just 15 months.

  • Doxycycline, a generic antibiotic, went from $20 a bottle in October 2013 to $1,849 by April of 2014. That’s 380% in just six months.

  • Pfizer was fined by regulators in the United Kingdom for imposing a 2600% price hike for phenytoin sodium, a generic anti-epilepsy medication.

These are just the most high-profile cases, of course, and when it comes to drug prices, there are always many factors at play.

In addition to bad actors, collusion, market consolidation, and policy loopholes play a role, all of which puts payers—and patients—at the mercy of drug makers and shadowy middlemen (including drug wholesalers and, yes, quite possibly your PBM). And since payers don’t generally monitor transactions closely, dramatic, unexpected spikes for common generic drugs can cost hundreds of thousands of dollars before they are flagged.

After the jump, we’ll take a quick look at the factors driving rising generic drug prices (note the graphic here: 3,500 generic drugs doubled in price between 2008-2015… and the situation hasn’t improved since):

Generic Drug Prices Rising

So… Why Are Generic Drug Prices Rising? And What’s to Be Done?

BAD ACTORS ARE BUYING RIGHTS TO AGE-OLD DRUGS Back in 2015, Turing Pharmaceuticals famously jacked the price of Daraprim from $13.50 a tablet to $750 overnight, bringing the annual cost of treatment for some tuberculosis patients to hundreds of thousands of dollars. The price increase was rescinded following public outcry, and Turing’s then-CEO, pharma-bro Martin Shrkelli, is now doing time at Fort Dix Federal Correctional Institution on unrelated fraud.

Unfortunately, this is not an isolated incident. It illustrates the power that a single unscrupulous actor can have over drug prices in the current regulatory environment. Dramatic price increases for common generic drugs happen all the time—can happen overnight in some cases—and payers, patients and their doctors generally receive no warning.

COLLUSION AMONG GENERIC DRUG MAKERS AND MIDDLEMEN The good news is that suspicion regarding these high-profile price spikes has led to state and federal inquiries into price-fixing. As NPR notes, forty-five states and the Department of Justice have claimed that generic drug prices are fixed, suggesting that the alleged collusion may have cost U.S. business and consumers more than $1 billion. In their complaint, prosecutors say that when pharmacies asked drug makers for their lowest price, the manufacturers would rig the bidding process.

SUPPLY AND DEMAND AND REDUCED MARKET COMPETITION Collusion is not the only problem with the generic drug market, which has seen shortages in the manufacturing supply chain and a wave of mergers and acquisitions, as well as market abandonment. Decreased competition can cause drug prices to rise significantly, according to a study published in Annals of Internal Medicine, and this trend appears likely to continue unless policies are enacted to stabilize generic drug markets.

REGULATORY LOOPHOLES FAVOR DRUG MAKERS Federal regulations generally favor drug makers, but there is hope! Legislation is pending, as is the Trump Administration’s “American Patients First” plan, which was unveiled to widespread criticism but has yet to be revealed in full. The CREATES Act (stalled in the Senate) and FAST Generics Act (stalled in the House) could also help to close regulatory loopholes and potentially save up to $5.4 billion a year in reduced drug costs.

The FDA itself is aiming to patch a porous regulatory framework that has allowed branded drug manufacturers to block generic competitors. The agency has posted a list of branded drugs that are not under patent, in hopes of encouraging generic investment, and has said it will fast-track its review of generic-drug applications that have less than three competitors.




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