Generic drug quick facts
What is a generic drug? Generic drugs are chemically identical to brand name drugs, equally effective and prescribed for the same purposes.
How do generic drugs enter the market? Drug companies submit an application to the U.S. Food and Drug Administration for approval to make and sell a generic drug, but those applications can't be approved until all patents and exclusivity for the brand-name drug have expired. Patents expire after 20 years and exclusivity can last up to 7 years.
Why were generic drugs introduced?
Generic drugs help combat the rising cost of health care and allow market competition for brand-name drugs.
Who makes generic drugs? The top five U.S. companies by unbranded generic prescriptions dispensed are Teva Pharmaceuticals USA, Mylan Labs, Actavis, Sandoz, and Lupin Pharma, respectively, according to the Generic Pharmaceutical Association.
Source: U.S. Food and Drug Administration, Generic Pharmaceutical Association
CHICAGO — When he called for a routine prescription refill, Craig Elliott got a rude shock: His bill was going up fivefold.
The 44-year-old piano tuner and guitar instructor, who has health insurance, used to pay $20 for a three-month supply of his generic epilepsy drug as a member of Walgreen’s Prescription Savings Club. But recently, the price shot up to more than $100, forcing him to order month by month.
“I’ll get by, (but) I don’t like now having a larger bill every month,” Elliott said.
Countless other Americans are feeling the same sticker shock at the drugstore. Historically costing pennies on the dollar compared with a brand-name drug, generic drugs have long been considered a vital weapon in the fight to contain soaring health care costs. But in the past year, the price of many generics is disconcertingly moving in the wrong direction, drawing the attention of Congress and pinching the wallets of consumers as well as pharmacies and insurers.
“We are talking about the need of the American people to be able to afford the medicine that their doctors prescribe,” Sen. Bernie Sanders, I-Vt., chairman of a Senate health care subcommittee, said at a recent hearing on the issue. “There appears to be now a trend in the industry where a number of drugs are going up at extraordinary rates. 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.”
Experts say raw material shortages, consolidation in the industry and medical advancements that make replicating brand-name drugs more expensive have contributed to skyrocketing costs.
According to Catamaran, a pharmacy benefit manager that administers prescription drug programs, consumers and insurers paid an average of $41.88 for a generic drug prescription in recent years, up from a four-year average of $14.21 between 2005 and 2009. Today, more than a third of available generics cost insurers and consumers more than $100 per prescription, company data show.
“People who don’t have insurance, they’re picking up the full fare of these drugs,” said Catamaran’s Chief Medical Officer Dr. Sumit Dutta. “And they’re often not in the best place to handle the cost of these medications.”
A Pembroke Consulting analysis of federal data shows that the price pharmacies pay for generics over the past year has soared, too, by as much as 17,700 percent. One in 11 generic drugs have more than doubled in acquisition cost for pharmacies in the past year.
To cope, insurance companies have introduced co-pay tiers to their plans to offset rising generic prices, Dutta said.
Walgreen Co., which cited the skyrocketing generic drug prices as an obstacle for 2015 profits, has a similar tiered system with its Prescription Savings program, a membership plan that offers discounts on services and drugs. The generic epilepsy drug that Elliott takes, Carbamazepine, had been on its list of value-priced generics but was removed when the price increased, a Walgreen spokesman said. According to Pembroke Consulting, the average pharmacy acquisition cost of that drug increased about 22 percent between July 2013 to July 2014.
A spokeswoman for Teva Pharmaceuticals, one of six manufacturers of the epilepsy drug according to the U.S. Food and Drug Administration website, declined to say why the price of Carbamazepine has been rising.
While raw material shortages are one factor behind price increases, health analysts say that market competition — or lack thereof — also plays a role. Sometimes, drug manufacturers opt to discontinue a line because the presence of other manufacturers results in pricing pressures, which cut into profits. They also feel pressure to specialize product lines and consolidate through mergers and acquisitions, creating even more pricing power for remaining manufacturers.
And as medicine advances and drugs become more expensive and difficult to imitate, fewer companies are willing to invest in making generic versions of brand-name drugs that move off patent protection.
When chemotherapy drug Xeloda moved off patent in December 2013, a generic version, Capecitabine, entered the market. Today, it costs just $40 less per prescription than it did when it was a branded drug — $2,660 instead of $2,700, a 1.5 percent decrease, according to Catamaran data.
The rising prices have caught the attention of Congress, and last month Sanders and Maryland’s Rep. Elijah Cummings requested financial documents from 14 pharmaceutical companies across the country.
Last year, CVS Caremark announced a partnership with Cardinal Health, giving it more generic drug buying power. Walgreen Co. works with AmerisourceBergen and Alliance Boots and McKesson announced its acquisition of Celesio in January. Those three groups wield a huge amount of purchasing power, which should keep generic drug prices down.
“What the American people are entitled to know,” Sanders said, “is why there are a number of generic drugs that have seen a huge increase in prices in recent years.”