How to Lower Prescription Drug Costs

Are prescription drug costs making you sick? The FDA and Congress could bring them down by strengthening the generic marketplace.

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Five Figures to Consider

9 in 10 prescriptions filled in the U.S. are generics
500 prescription drugs have one generic competitor or fewer
+47.4% average price change in generic monopoly market 2008-2014 compared to -31.7% for a generic market with four competitors
20 state attorneys general have accused generic makers of price-fixing schemes
1 in 4 Americans reports difficulty affording their prescription drugs

Americans know they can save money on prescriptions by buying generic drugs. On a recent day in New York City, one could pick up 30 pills of Lipitor for $413 at the local pharmacy or buy its generic copy, Atorvastatin Calcium (the most popular prescription in America last year), for $24 at the pharmacy or $9.75 online.  Indeed, in the U.S. marketplace, where the government is not sanctioned to set drug prices, generic competition plays a critical role in constraining pharmaceutical costs. Nine out of ten prescriptions filled in the U.S. is a generic.

But while that 30 cent generic cardiovascular pill may seem like a bargain compared to its $14 branded competitor, it could likely sell for much less and still be quite profitable for its manufacturer. Why?  Because in the generic drug marketplace, prices have more to do with the number of competitors in a market than with the cost of manufacturing, and too many markets have too little competition. In the U.S. 500 prescription drugs have just one competitor or fewer.

That uncrowded marketplace leads to high price increases both on branded drugs and generics. From 2008 to 2014 generic drugs that had a monopoly increased in price by 47.4% compared with a price drop of 31.7% for generics in markets with four competitors.  In an effort to keep prices and profits high, both branded and generic drugmakers engage in activities that hamper generic competition.  One tactic known as “pay-for-delay”  entails a branded drug company paying a generic drug maker to keep its generic off the market for a period of time. According to the Federal Trade Commission, this anti-competitive practice costs Americans $3.5 billion annually.

Other tactics of Big Pharma include gaming patent policies to extend market exclusivity and preventing generic competitors from acquiring drug samples or gaining access to the safety protocols they need in order to bring generic copies of branded drugs to market. Generic drugmakers are no saints either. In December of 2016, twenty state attorneys general filed a complaint accusing six generic drugmakers, including industry giants Teva Pharmaceuticals and Mylan, of price-fixing. Meanwhile, ongoing consolidation in the generic industry is another threat to price competition.

America needs relief. One in four Americans say they have difficulty affording their prescriptions, and one in ten reports delaying or forgoing prescriptions on account of costs. This is bad news for public health. Fortunately for consumers, the new F.D.A. Chief Scott Gottlieb is focused on lowering prices by increasing generic competition.  Already the F.D.A. has begun speeding approvals for generics that are not the first in their field (based on the idea that the more competitors, the lower the price) and developing measures to speed the introduction of generic competitors of expensive, complex drugs like the Epi-pen.  In Congress there is bipartisan support for the CREATES Act introduced in 2016 and again in 2017 by Senator Patrick Leahy. The Act  aims to ensure that generic drug makers have access to product samples and safety protocols necessary for bringing a generic drug to market.  Congress could also help by eliminating provisions of the Hatch-Waxman Act that enable branded drugmakers to keep competitors off the market for 30 months by claiming patent infringement and also by eliminating the 180-day exclusivity period for the first generic to a market. It takes courage to stand up to Big Pharma. Drug and health care product companies spent $246 million lobbying Congress and federal agencies in 2016 and are on track to spend close to that amount again in 2017.  No other industry has spent more.

FIVE FIGURE THINKING
Competitive generic drug markets are crucial for controlling drug price inflation in the United States, where branded drugs are more expensive than just about anywhere else in the world. The F.D.A. and Congress should use their power to alter patent policies, exclusivity arrangements, and anti-competitive industry practices in order to bring down drug prices and make Americans healthier.. Meanwhile, you can check out prices for your prescriptions on GoodRX and Lowestmed.com.