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New Generic Drug Report Shows Promising Savings

October 15, 2018

A new study reports generic drugs saved U.S. consumers $265 billion in 2017.

The report from the Association for Accessible Medicines, an industry trade group, states generic drugs saved Medicare and Medicaid $82.7 billion and $40.6 billion, respectively, in 2017. These savings for taxpayers translate to an average of $1,952 for every Medicare enrollee and $568 for every Medicaid enrollee, the report states.

Other results of the study show brand-name drugs represent 10 percent of prescriptions filled and 77 percent of all prescription spending. In 2017, nine out of every 10 prescriptions in the United States were generics, and the generic version was chosen 97 percent of the time over a brand-name medication when both were available, the report states.

Free-Market Success

Matthew Glans, a senior policy analyst for The Heartland Institute, which publishes Health Care News, says the study shows the free market works when given a chance.

“Billions are spent each year on research and development in the pharma industry, and once patents on brand-name drugs expire, other manufacturers can then begin to develop much more affordable generic versions of prescription medications,” Glans said. “The money spent on research and development leads to groundbreaking advancements in drug development that profoundly impact the lives of mil- lions of Americans, and when these advancements become available to a larger group of manufacturers, those life-altering drugs become cheaper and more accessible, thanks to the movements of the free market, not government mandates.”

FDA Role Noted

Devon Herrick, a health care economist and policy advisor to The Heartland Institute, says the intrusive, slow- moving regulatory regime of the U.S. Food and Drug Administration (FDA) explain why some generics that had been on the market for decades suddenly became scarce and experienced huge price increases.

“A few years back, commonly available generics had suddenly become unavailable, leading to sticker shock as consumers felt the burden of the rise in cost,” Herrick said. “Older drugs can sometimes be made on antiquated production lines, which can be shut down for maintenance or stopped if the manufacturer has been warned by the FDA that the facility is out of compliance with current good manufacturing practices.

“Generic drug prices were also rising when suppliers stopped making them in favor of newer, more profitable drugs,” Herrick said. “Once a manufacturer left the market, the FDA could take months to approve a new firm. Government regulation was at least partly responsible for generic [price] inflation, so this new report showing the market influence is encouraging to see.”

Reducing the amount of time it takes for a drug to be produced, which is heavily affected by government regulation, would help keep the market flush with new drugs and make a big difference in forcing prices downward, Glans says.

“The Pioneer Institute did some work a few years ago that showed that it takes 15 years to produce a new drug, a marked increase in length of time from decades past,” Glans said. “Development time increased 145 percent from 2003 to 2016. The cost to develop a new drug in 2014 averaged $2.6 billion.”

More Competition, Lower Prices

One of the best ways to lower prices and increase the availability of prescription drugs is to foster competition in the pharmaceutical industry, Glans says. Generics, as the report shows, is one of the best ways to lower drug prices,” Glans says. “Generic drugs are less expensive, sometimes to the tune of 80–85 percent less than their brand- name counterpart, and that’s according to the FDA. So, if those drugs are widely available on the market, the cost goes down to consumers.”

A kneejerk reaction to implement price controls and ignore the cost of development is not the answer to occasional price hikes, Glans says.

“Commonsense reforms such as streamlining the approval process for generic drugs and their brand-name counterparts would allow the market to do a lot of the heavy lifting in bringing down drug prices,” Glans said.

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Health Care
Author
Sarah Lee is the managing editor of Health Care News and a research fellow at The Heartland Institute.
slee@heartland.org @HCPolicy