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.