Healthcare Reform and Generic Drugs will Drive Branded Prescription Drug Prices Higher

Recently, in one month, the price of my branded prescription drug for high cholesterol went from $130 per month to $145 per month at the same pharmacy.  Yesterday I changed to a generic drug alternative (not the same as the brand I was taking) which will cost me $4 per month after joining a $20 per year prescription savings club.  I now get more than two years of medication for the price I was paying for one month of the branded product.  Assuming I will be able to control my cholesterol with this new medication (no reason to believe it won’t as I have taken most of them over the past several years),  at $1 per week it is hard to complain about the high price of prescription drugs.

So why was I even paying $130 in the first place, when generic alternatives were available?  Well, when I had prescription drug coverage through my employer provided insurance,  my co-pay for the branded products was about $20.   I not only didn’t think about the actual price of the drug but I didn’t even care to know what it would have cost without insurance.   Generic drug alternatives didn’t enter the thought process.  Besides, how much lower priced could the generic drug be? More recently, until the price increase,  I just kept getting the prescription filled even though it seemed expensive at $130 per month.

Fortunately my physician agreed to try me on the generic alternative.  For once I also felt fortunate that I was not covered by a government program (e.g., Medicare, Medicaid, and TRICARE) which would have made me ineligible for this savings club and these generic drug prices.  There is a wide range of therapeutic categories with over 400 generic medications available from this pharmacy prescription savings club priced at $12 for a 90-day supply (or $9.99 for 30 days).  Again, hard to suggest these prices are unreasonable and they certainly are not expensive in the context of most prescription drug price discussions.  Even without the savings club membership the price would have been less than $30 per month.

Despite the fact that over 70% of prescriptions in the US are now filled with generics drugs, I can’t help but to think from my own experience that there are still a lot of people who could financially benefit from a switch to generics.   I also believe healthcare reform will bring significant cost pressures to get more patients converted to generic drugs.  The Congressional Budget Office reported that in 2007, if all of the 45 million Medicare Part D prescriptions filled with multiple-source brand-name drugs (brand name drugs with generic alternatives) had instead been filled with their generic counterparts, an additional $900 million would have been saved.  And that is without considering therapeutic substitutions (as my case would be considered) or the potential savings from the blockbusters now coming off patent over the next few years.

The biggest downside for patients resulting from this healthcare market evolution to encouraging the use of more generic drugs is that if you need one of the innovative branded products for which there is no good generic alternative, you are going to pay much higher prices than you might have in the past.  If my generic cholesterol lowering agent isn’t as effective (or has more side effects) as the branded product I was taking, I’ll be back to paying the $140 per month.

I believe two factors will drive branded product prices higher with healthcare reform.   First, truly innovative treatments that deliver real clinical value and unique therapeutic benefits will command a premium price because they will be deemed worth paying for and taking.   Second, more generic drugs and more patients taking generic drugs will shrink the market for branded products to people who absolutely need the branded products.   Drug companies will have to exact their profits from fewer products that can deliver these unique therapeutic benefits to much smaller patient populations.   Companion diagnostics will further reduce these already small populations of patients, by identifying responders and eliminating those who might experience side effects.

So the good news for patients is there will be more generic drugs available at low prices resulting in lower costs to government programs (tax payer benefit), private insurance (keeps co-pays lower), and patients.   Pharma companies on the other hand will be able to, and will have to, charge even higher prices when patients need their innovative branded products.

Disclosure:  I am not compensated  by the prescription savings club.  The link is included here only as a reference.

16 thoughts on “Healthcare Reform and Generic Drugs will Drive Branded Prescription Drug Prices Higher”

  1. This is a very sad commentary on the future of medicine and we won’t see the backlash from it for 10 or 20 years. Generics do not contribute one penny in the development of cures for diseases. Most drugs, unless they are blockbusters like Viagra, don’t turn the first penny of profit for about 5 years. Why? Mostly because the cost of R&D is so expensive. So everyone keep pushing for generics only, but you’d better hope you don’t develop Alzheimer’s, Parkinsons, or any other disease we don’t yet have a cure for. I myself will continue to buy branded drugs. Lastly, with generics, the bioequivalence can be very different.

  2. Mildred,
    Thank you for sharing a perspective that I’m certain is shared by many Pharma Reform readers.

    I too felt compelled to continue to buy the branded product until I, like many others, had to face the financial realities of having to pay the full price (actually the $140 per month was a discounted price) for my prescription drugs. I was more stunned by the price increase ($15 per month) than anything else. Was that R & D related?

    I understand the costs of R & D and I also appreciate the need for pharmaceutical companies to make reasonable profits and provide their investors with a higher than normal return on their investments to account for the risks.

    If you have followed my blog or have read Pharmaplasia™ you also know that I believe the industry has squandered billions of dollars on decades of operational inefficiencies, expensive and sometimes illegal marketing and sales activities, paid billions in unnecessary fines and settlements, and all the while paid executives handsomely for this performance. I also know (I was in marketing) the price of drugs is set by “what the market will bear” and not driven by R & D expenses. I also don’t feel it is right to expect patients to pay for inefficient or poorly managed business practices.

    And while I still believe the pharmaceutical industry remains the only hope for developing drugs for the future, one of the realities of the evolving healthcare market is that pharma companies will have to deliver innovative new products with clinically meaningful benefits over currently available therapeutic options, including generic drug alternatives. This hasn’t always been the case. To find these innovative new products that do in fact meet unmet medical needs such as Alzheimer’s, Parkinson’s, and the many other diseases as you suggest they are going to have to reduce the wasteful spending and make dramatic changes in how they approach discovery research.

    As the healthcare market becomes increasingly cost conscious, it is unreasonable and unrealistic to expect the market to continue to pay inflated branded prices when generic drug alternatives are available at a fraction of the price. At the same time, when a truly innovative product comes along for which there are no generic therapeutic options, the market should expect to pay a premium price and that is what I expect will happen and that will drive new prescription drug prices higher.

  3. I agree with you Mike that the industry has squandered billions of dollars over the years. However, it costs approximately $1 billion to bring a drug to market. I do believe that pharma companies should deliver innovative new products with clinically meaningful benefits over their generic counterparts — but that reform needs to be pushed at the FDA! They are the ones approving these “me too” products that carry a higher pricetag!

  4. Bristol Myers and Sanofi just raised the price of their blockbuster, Plavix by 11.9%. the FDA just extended their exclusivity by 6 months for their pediatric study, which did not result in any new indication. Their argument is R&D costs- as you pointed out, not true, but what will the market bear. Plavix is a required drug in every stent patient, it’s only competitor, Effient from Lilly has not done well, so for the last year of patent life squeeze every penny out of it. Sad, but true.

  5. Julia,
    Appreciate your comment but I’m not sure it is the responsibility or within the authoritative purview of the FDA to review, approve, or reject new drugs based on whether they are innovative or not. I believe the market has already begun to demonstrate it is no longer willing to pay premium prices for prescription drugs that are no better than what is available.

  6. Well as I said, there will be a backlash over this generic push in 10 plus years. The govt has made a mess of Medicare and cannot shoulder the cost of R and D for new drugs to cure diseases. The private sector HAS to be the one to come out with new drugs to cure diseases, and why should they bother if they cannot make a profit. They are the same as any business trying to make a profit. And while they HAVE wasted much money in the past, that is no reason to make them out to be the bad guys in the future. We need them. Your thoughts about generic equivalents is a bit ignorant as many generics are NOT AB rated to the newer and better drugs that have come out. As a nurse, I see all the time drugs being prescribed to patients when there are newer and better drugs for their medical conditions. Would you like your mother or father prescribed a 25 year old drug for diabetes when they can get much better glucose control with less side effects giving them a better quality of life? While I admit there are many good generics that can do the job, a push for 70% generics is misguided and we will come up short for cures down the road. Be careful what you wish for.

  7. And to Julia. The FDA put the drug companies on notice a little over a year ago…..NO MORE me too drugs. I believe they only approved 18 drugs in 2009. That isn’t much.

  8. Your comments are clearly biased against innovation and research, you cannot see beyond bargain basement pricing. I agree health care costs have to be managed and less than 10% is attributed to drugs, a point you failed to mention. There will be no new blockbuster, breakthrough drugs because insurance companies are in control and government regulation. In fact, no really blockbuster drug has entered the market since 2006. Like so many short sighted people, you want something for nothing. Pharma will continue it’s downward spiral and the age of innovation will grind to a crawl (it has begun) or stop!!

  9. Pharma was my life,
    I am not against innovation. If you have read my R & D posts you will see that I have continuously proposed ways for Pharma to retool with a focus on discovery research, adopt more aggressive strategies for adopting companion diagnostics to help differentiate products, and forging new collaborations with world class academic expertise to enhance their research teams. Unfortunately, Pharma has only recently in the face of the patent cliff and lackluster pipelines has just started to look at a new model to increase research productivity. In this post and in my commentary I am not advocating generic drugs but merely pointing out the realities of the market.

  10. Mildred,
    Thank you for your thoughtful comments. I am not advocating generic drugs. I have merely pointed out the realities of the evolving healthcare market. The fact that more than 70% of prescriptions in the US are now filled with generic drugs is a reality of the market, not an aspiration. This reality has not been lost on even the biggest of big Pharma as many of them now have their own generic drug divisions or companies.

  11. Then clearly we are headed in the wrong direction. I wish for at least a 50/50 blend so R&D can still thrive. So now that you are on a generic, do you find the two articles I posted interesting?

  12. Well Mike. I feel good that at least you have an open mind that 70% generics is not the answer. I don’t know if you write for a paper or magazine but another travesty that is occurring is the bonuses that the doctors are collecting for writing generics. I have seen with my own eyes one check for 35k and another for 51k. Yep. The doctors are taking payola. Gotta love it. The meaning of “Do no harm” has been lost to a certain extent. It’s that use of the 25 year old generic diabetes drug that I’m talking about. As a nurse, it sickens me.

  13. Mildred,
    The only way to get to 50/50 at this point is for Pharma to deliver a lot more innovative new drugs in the future than they have over the past decade.

    As for the articles about the questionable bioequivalence, I had both articles in my files. With so many variables in formulation, potential for lot to lot variability, and across so many different manufacturers for the same drug, I believe it is going to be difficult to get to a definitive answer as to whether generic drugs are or are not bioequivalent to the brand. And, as the articles suggest, who knows whether or not the lots of tablets or capsules being produced now are as consistently (narrow specifications) bioequivalent as the ones submitted to the FDA when the generic drugs were initially approved.

  14. They cannot deliver new innovative drugs without making a profit on existing products. It’s a funnel that constantly has to be filled.
    Re generics, with the allowance of being as high as 125% of the drug or as low as 80% of the drug, it’s not always the right thing for the patient. Especially if the drug is a narrow therapeutic index drug.
    Thank you for your responses.

  15. @Mildred
    I would like to comment that I once worked as an Executive Search Recruiter on behalf of the pharmaceutical companies. I am privvy with the salaries within the pharmaceutical structure and the bonuses most all employees receive – they are very high and unnecessary. While I believe a nice salary with a bonus is wonderful – pharmaceutical salaries and bonuses are off the map and unnecessary to be as rich as they are. This is why pharmaceutical drugs are expensive – it’s not so much the R&D, that’s part of it, but the prices of the drugs are high and so are the salaries.

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