Monday, December 1, 2014

The Increasing High Cost of Generic Drugs

With all of the drama about high pharmaceutical drug prices, the marketing behavior of the Big Pharma biz, and the medicalization of American society - there has been very little said about the generic drug business.  I discussed it in this piece about the DSM-5 and an absurdly high anti-depressant profit attributed to the pharmaceutical industry.  One of the highlights was how inexpensive some of the most well researched and recommended  antidepressant drugs were.  Then just this weekend I got a call from a friend who was taking an antidepressant who told me that his cost went up by 25% on the medication he was taking on the same insurance plan.  As any psychiatrist knows it is practically impossible to advise a patient on what they will end up paying for an extended release version of venlafaxine, even though it has been generic for a while.  Any attempt to find out online results in a confusing blend of American and Canadian prices.  Some of the Canadian prices on the same list exceed what would be paid in the US.

I caught an article by Hirst, reproduced in my local paper this weekend.  She describes a patient who was taking generic carbamazepine.  Carbamazepine has been generic for years.  I can recall prescribing the generic 15 - 20 years ago for patients with bipolar disorder.  This patient had been taking the medication for epilepsy and getting the drug through Walgreen's Prescription Savings Club.  He was paying $20 for a three month supply, but recently the price increased to $100.  That forced him to buy it on a month to month basis.  My drug information suggests at least 5 generic manufacturers and the original name brand along with a sustained release patented version are all on the current market.  Senator Bernie Sanders (I-Vt) is quoted:  "....We wanted to know if there was a rational economic reason as to why patients saw these price increases or whether it was simply a question of greed?"  The federal government tightly regulates health care with special attention from the Department of Justice - how could dramatic price increases in the face of ample competition be a matter of greed?  Wouldn't there need to be a cooperative effort on the part of all competitors to drive up the prices that fast?  The article cites "raw material shortages, consolidation in the industry and medical advances that make replicating brand name drugs more expensive".  I don't accept that explanation any more than greed.  One of the most expensive medications to manufacture in recent times was atorvastatin.  When it first came out, I spoke to a scientists involved in the production and he told me what it cost per pill to manufacture.  That cost was a small fraction of the overall prescription price.  That leads me to believe that even a $4/month prescription for ranitidine can lead to profits for a generic manufacturer.

The Hirst article quotes a pharmacy benefit manager as saying that average cost of a generic drug prescription has increased from $14.21 in 2005 to $41.88 in 2009 and that 1/3 of available generics cost more than $100 per prescription.  Another consultant suggested that acquisition costs of pharmacies have increased 17,700% in the past year.

A more academic article is available from the New England Journal of Medicine by Alpern, et al.  Those authors look at the specific example of albendazole, a broad spectrum anti-parasitic with a long expired patent.  In 2010, the average wholesale price (AWP) for a single day dose was $5.92.  By 2013 it was $119.58.  The authors look at the National Drug Acquisition Costs file and cite a number of significant price increases in widely known generic drugs including captopril, clomipramine, digoxin, and doxycyline.  They have produced an excellent graphic that looks at the number of prescriptions and global Medicaid budget for mobendazole and albendazole and the factors that led to the significant price increases for the latter.  In this case it seems like a lack of competition as being the limiting factor and the authors cite that "drug shortages, supply disruptions, and consolidations within the generic drug industry" are all factors that decrease competition and therefore may increase prices.  They also described the generic drug approval process as slowing down competition especially in a market where a delay in implementation of the generic can cost additional tens to hundreds of millions of dollars.

Both the NEJM article and the Chicago tribune article have a supply side emphasis.  Adequate competition and innovation in a free market increasing supply and driving prices lower while maintaining high value to the consumers.  But there is another story.  Demand for pharmaceuticals is relatively inelastic.  That means that if there are price increases buyers cannot postpone their purchases for a better day without the risk of significant and in some cases life-threatening consequences.  That inelasticity is compounded by several recent factors that lead the further complications.   The first is the advent of high deductible health insurance plans.  The majority of employers use these plans largely because managed care has failed to contain costs and costs to their employees are generally shifted to that risk pool in the subsequent year.  This puts anyone with high deductibles at significant risk for out-of-pocket costs until that deductible is satisfied.  Any drug manufacturer can expect to receive significant out-of-pocket payments while the deductible applies.  The second is the advent of "tiered' coverage based on the insurance plan.  This usually involves a steeper copay for an insurance plan that covers less.  The real risk is that the patient may decide to simply forgo the prescription, but until that point is reached there is a good chance that they will pay significantly more than the lowest generic price in the drug class.  The current system of government sanctioned managed care and inelastic pharmaceutical demand places all Americans at financial risk since it is essentially a tax and in many ways an entitlement to health care companies including generic drug manufacturers.

The other obvious factor that none of the authors comment on is that some pharmaceuticals remain top selling drugs despite the fact that they are now generics.  In some cases like Advair Diskus, the drug is in a unique delivery system that is also patented.  Anyone using Advair is very likely to want to continue to use this delivery system whether or not it is a generic drug or not and the price remains high.  In another example from asthma care, numerous metered dose inhalers underwent a regulatory change in propellants from chlorofluorcarbons (CFCs) to hydrofluoralkanes (HFAs).  That was accompanies by a patent and an immediate and significant price hike to anyone using these inhalers.

I think that this trend is instructive for a number of reasons.  First, it illustrates that when it come to pricing of any pharmaceutical product it is more complex than just monopoly power.   There are clearly market forces in play that will escalate the prices of drugs that have been around well past the patent expiration date.  Conversely, there are many medications that have no pricing power and to the concern of patients and physicians they are just no longer manufactured.  It is easy to understand why generic drug manufacturers are unwilling to maintain a large inventory just so Wal-Mart and Walgreens can have a $4 per month formulary.  Second, it shows that there is a potential for significant distortion of markets being introduced by managed care  companies and their government counterparts.  Rather than the idealized "cost effectiveness" some of the arrangements out there are anything but cost effective and my example of how saving pharmacy costs can explode the cost of care in another direction is a case in point.

Most significantly, we have gone through a period of blaming the name brand pharmaceutical industry (otherwise known as Big Pharma) for a number of problems.  They have been blamed inadequate disclosure of clinical trials data, distortion of clinical trials data, ghost writing articles for physicians, and misleading marketing practices.  Critics also have the usual complaints about efficacy and side effects but seem to miss the regulatory goal of getting a relatively safe and effective (but not perfect) drug into the market for use.  They seem to get a pass  on their influence at the FDA and in fact, some critics seem to think that they can create an idealized regulatory agency that is free from political influence.  These critics seem to suspend the reality that pharmaceutical companies are businesses and that the people on the science end of those businesses in all likelihood have no idea about what is going on at the business end.  The explicit motivation according to the critics is money - the fuel of all businesses.  The generic drug industry (Little Pharma?) has a much smaller marketing infrastructure.  Research and development costs are much less.   They aren't detailing physicians. Until recently they were viewed as the saviors of the patient with little resources and a definite positive for every managed care company looking to enhance their bottom line by lower pharmacy costs.  They were the antidote to Big Pharma.  Despite all of the positive spin there has been a 300% price increase in 5 years for generic drugs.  I don't think I am going too far out on a limb here to say that generic albendazole may be one of the most profitable medications ever made.  Politicians are starting to make noise.  Can physicians be implicated like they were in the Big Pharma scandals? I don't see how, but nothing coming out of Washington would surprise me.

But the real silence here seems to be all of the Big Pharma critics.  We have a generic drug industry with no real explanation for huge price increases at least nothing we can easily attribute it to.  Instead of saying that Big Pharma unconsciously influences physicians into prescribing their expensive drugs, we have hundreds of thousands of physicians consciously trying to prescribe the least expensive drugs for their patients and they are now failing to do that on a regular basis.  Maybe the appearance of conflict of interest isn't quite the theory it was cracked up to be?

Where are the Pharmascolds with their theories?    

George Dawson, MD, DFAPA


1.  Ellen Jean Hirst.  Generic drug prices skyrocket in past year:  They were supposed top be cheaper but market forces have intervened.  Chicago Tribune  11, 30, 2014.

2.  Alpern JD, Stauffer WM, Kesselheim AS. High-cost generic drugs--implicationsfor patients and policymakers. N Engl J Med. 2014 Nov 13;371(20):1859-62. doi: 10.1056/NEJMp1408376. PubMed PMID: 25390739.

3.  National Drug Acquisition Costs.  Page with multiple files.  This is a large document with over 600 pages and 20,000 medications listed by NDC number.  For a sample click on the graphic below and discover why aripiprazole (Abilify) is such an expensive medication.


  1. Recent article about lack of bio-equivalency of another generic:

    I'm not sure what this means from your perspective.

    Is it that all drug companies, brand and generic alike, abuse the system the FDA created? That this system is a hot mess which fosters issues instead of preventing them?

  2. Not at all. I recognize the FDA for what is is - a flawed regulatory body that is politically influenced and generally responsible for approving medications that may be somewhat effective and somewhat safe, but nowhere near perfect. The compromise here is that there are interests that want drugs released fairly quickly with minimal associated costs and there are interests that want a more expensive regulatory system with a greater burden on manufacturers. At the level of generics, there are also interests who want expeditious approval of generics to keep down costs. The compromise results in post marketing surveillance and late complications in some cases (like a lack of bioequivalency).

    I thought the case of higher priced generics was interesting because of all of the associated arguments the Big Pharma critics make - most notably that there is a conspiracy among certain physicians, an undue unconscious influence on other physicians, in addition the the various overtly dishonest behaviors by the industry to create very expensive blockbuster drugs.

    I think it is clear that none of that is necessary as evidenced by extremely expensive generics. I would go so far as to say that "the appearance of conflict of interest" that seems to drive all of this is nothing more than a conspiracy theory. At least in the concrete case that any physician who talks with a drug rep or eats a piece of pizza paid for by a drug rep becomes a prescribing automaton for that drug.

  3. Big Pharma isn't merely "blamed" for inadequate disclosure of clinical trials data, distortion of clinical trials data, ghost writing articles for physicians, and misleading marketing practices. They've really done these things, and have been fined many millions of dollars for illegal marketing practices. Also, there's good evidence that Big Pharma unconsciously influences physicians, as well as the public through consumer advertising — or at least they try their very best to do so. Instead of denying it, it's a much stronger argument simply to note that all advertising and product promotion aims to do this. Pharmaceuticals aren't different from cars, breakfast cereal, or soap in that regard. Buyers/prescribers of these products aren't automatons, but we're all influenced at conscious and unconscious levels. The BBC's Century of the Self documentary from 12 years ago is an excellent primer on the way marketers intentionally appeal to our emotions. It's hubris for physicians to imagine we're immune.

    Yes, the rise in generic drug prices shows that none of this is "necessary." Who said it was? There are many ways the marketplace can hurt consumers. Criticism of Big Pharma doesn't exonerate "Little Pharma" or vice versa. Even if Big Pharma did nothing illegal and merely acted as other industries do, it would still be incumbent on us to safeguard our objectivity — just as a consultant paid to advise others about computer purchases should hesitate to accept largess from Dell and Apple. None of this changes as generic drug prices rise; it's just that we don't have as ready an alternative anymore. As usual, our job only gets harder. Perhaps investigative journalists need to look at the generics industry (too).

    1. “Even if Big Pharma did nothing illegal and merely acted as other industries do, it would still be incumbent on us to safeguard our objectivity — just as a consultant paid to advise others about computer purchases should hesitate to accept largess from Dell and Apple.”

      It is an interesting thought experiment because I know of no public safeguards on the objectivity of business consultants. I would just assume that trying to exert influence on these consultants is what business is all about. IT companies also have highly trained sales staff including sales engineers. My guess is these folks have more technical knowledge than most drug reps and from the lists of openings that there are many of them. Having been a corporate employee myself many times, this is often handled by the employee signing a loyalty oath. That oath usually says that the employee is bound to prioritize the interests of the corporation rather than maintain objectivity. I would argue that in the case of managed care companies such an oath may actually compromise medical objectivity a lot more than eating a piece of Big Pharma purchased pizza.

      Apart from the influence of marketing and advertising the other aspect here is paid consultants. In this case a company actually pays a consultant to work for them. The current zeitgeist suggests that this also compromises physician objectivity and therefore payment for work determines if a physician is included in the Physician Payment Sunshine Act database. I would argue that the intent of this database is to make physicians look bad. I may be biased by the fact that I have seen these figures used to make psychiatrists look bad when they were involved in legitimate work. Contrast that with any number of math, science, and engineering departments at major universities where similar contracts are expected to supplement academic faculty salary and often worth nearly as much. The naysayers will have the usually excuses about why physicians need to be handled differently. They ignore the overwhelming political biases against the profession in this country.

      If I am the only guy pointing that out – that’s fine with me.

    2. Sorry for my delay, I didn't think to look back at this post after your next one appeared. We agree there are no public safeguards on the objectivity of business consultants, and that "trying to exert influence on... consultants is what business is all about." That's why consultants have professional codes of ethics themselves — private safeguards if you will. That's all I've ever argued for in medicine.

      I don't know whether a loyalty oath to managed care or "corporate medicine" compromises medical objectivity more or less than canoodling with Big Pharma. Even if the former is worse, and it may well be, two wrongs don't make a right.

      I agree public disclosure of physician payments can be misleading. However, another hat I wear is chair of CME for my local medical center. When a proposed CME talk features a paid consultant for a "commercial interest," e.g., a physician paid by a drug company or device manufacturer, CME regulations say we need to "resolve" any conflicts of interest we find. It's entirely possibly there won't be any, but we can't assume that going in. When it comes to medical education, being paid by industry is cause for some scrutiny, not for a foregone conclusion of bias. I don't disagree with that.

  4. Dr. Reidbord – Thank you for your continued inspiration. I decided to post a response to your excellent commentary as a separate blog post. I think that our perceptions of the world may be quite different and I hope I have responded globally and in a way that it is not too tedious. I find that is always a risk with complicated issues that are often spun into political answers. The one that is most bothersome to me is that physicians are incapable of critical thinking and need to be sheltered more from advertising than an average American. I find that idea and its uncritical acceptance quite shocking and probably flowing from a lack of objective analysis