GENERIC DRUG PRICE INCREASES
What are Generic drugs?
They are copies of branded drugs that are only produced after the expiration of the brand-name drugs patent. Generic drugs are similar to their branded counterparts and are priced at significant discounts to the branded price. Their prices are relatively lower as the drug makers go through a short and less expensive process of obtaining approval from the FDA. By generic, we mean that the drug manufacturers leave the high development costs to consumer, but this has not always been so. Before the 1984 Hatch-Waxman Act, the generic manufacturers were mandated to use similar process used by branded drugs manufacturers, before they get the approval from the FDA, and this slowed down the development of generic drugs because of its high financial barriers.
The Rise Of Generic Drugs?
The law amendments that were later made were the favour of generic drug makers, influx of new players joined in the manufacturing of the generic drugs and this reduced their prices further. Now, they cost 80% to 85% lower than the popular brand name product. The usage of generics has experienced a rise as prices declined. Currently, the share of generics rose from 18% in 1984 to nearly 80% this year in the US.
In the last 10 years alone, there have been lost patents of branded drugs worth billions of dollars in sales. This news can be terrifying to pharmaceutical companies, but to the US health care system, it is favorable because health care expenditure is on the increase. In the last decade, generic drugs generated $1.2 trillion in savings to America’s health care system between 2003 and 2012.
For some time now, generic drug price increases have been alarming, which is causing some major concerns for the pharmacy retail industry in the form of reimbursement rate pressure. Below is a detailed analysis why.
GENERIC DRUG PRICE INCREASES
As reported by Elsevier, a pricing information and drug product provider out of a research sample of 4421 drug groups, 222 generic drug prices increased by a hundred percent or more, between the month of November 13 and November 14. There have also been extreme cases where price increased over 1000% like in 17 drug groups. A practical example is the popularly prescribed bacterial infections treatment drug, tetracycline, where the cost increased from $0.0345 to $2.3632. In just one year, it experienced a 67-fold increase. Why such increase, you might ask?
Factors That Contributed To The Price Rise
Industry Consolidation
In the year 2009, generic drug makers began to form acquisitions and mergers in order to attain and maintain the desired level of profitability. Also, to avoid falling into losses, since the generic drug markets projections did not look encouraging. Usually, when a branded drug loses its patent protection, many generic manufacturers rush to produce that drug and then there is a price competition at the end of the day. However, the post-industry consolidation is marked with fewer generic manufacturers applying for permission to the FDA to produce those drugs. Generic drug prices have increased over time because fewer manufacturers are producing a particular generic drug. Like in some cases only 2 or 3 manufacturers. There are still more influential factors like this.
Drug Shortages Due to Manufacturing Issues
Demand rises over supply and results in a price rise especially one or more of the manufacturers making a particular drug run short of inventory. The FDA says, the major reason for drug shortages is as a result of quality and manufacturing issues. Each facility that is used for production is monitored by the FDA and if there is any issue the manufacturing company will be notified immediately. Getting approval to continue production is very tough, through a rigid approval process to even transfer production to another facility and in case the company manages to transfer production there will be significant shortages of drugs that are being manufactured at both facilities. Even though the negative impact drug shortages have on patients, drug manufacturers are not ready to make capital investments needed for increasing the capacity production at a significant especially when the issue is resolvable after a while. Also, a generic maker might choose to stop production of a drug because they want to invest in more profitable initiatives or reallocate resources to another product.
Note: without an approval from the FDA the last remaining drug manufacturer cannot stop the production of a particular drug, especially if a drug is urgently needed medically, the chances that the FDA will grant that request is low.
Stricter Regulation leads to drug shortage.
The FDA is very strict in quality control and this has led to manufacturers to invest in a quality system. In case the FDA issues a notice regarding a quality issue, improving the facility is an incremental investment that resolves the issue for the drug maker. But in extreme cases, a ban of a facility from production might result. A practical example is the FDA’s ban of four Indian plants of Ranbaxy Laboratories from distributing or producing any drug ingredients in 2014. In 2015, the exclusivity that the AstraZeneca company had to manufacture Nexium, a drug prescribed for heartburn, was lost due to the excessive delays. In 2014, they had sales worth more than 6 billion dollars was registered. Factor responsible for the generic price inflation includes supply shortages due to issues. This has led to various retailers dropping certain medications from their programs.
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