Shopping for Drugs: 2007

Policy Reports | Health

No. 293
Thursday, November 16, 2006
by Devon Herrick, Ph.D.

Generic Drug Substitutes

Consumers can also lower drug bills by seeking generic equivalent medications whenever possible.  Although half the drugs sold are generic medications - up from just over 20 percent in 1985 - they are still underutilized.  According to the Prime Institute at the University of Minnesota, only 10 of the 50 medications most frequently used by seniors in 2001 were generics; the remaining 40 were more expensive brand-name drugs.77  For example, two-thirds of the drugs dispensed by the Veterans Affairs (VA) health system are generic, but they represent only 8 percent of the VA's prescription costs; the rest are branded and account for 92 percent of the VA's drug costs. 78 

"Smart Shopping: Consider generic drugs."

For retail customers, generic drugs are generally priced 20 percent to 80 percent lower than the original branded drug.79  In 1993 the cost difference between buying a name-brand medication and its generic equivalent was $22.46.  A dozen years later the savings had more than tripled to $71.89.  Thus, the average cost for a generic prescription was $29.82 in 2005, compared to $101.71 for branded medications.80  Only those medications whose patent has expired are available in generic form, however.  Some well-known drugs that have recently lost patent protection include Prozac and Zoloft (for depression), Claritin (for allergy relief), Zocor (to lower blood cholesterol) and Prilosec (for ulcers and gastric reflux disease).

Patents and Drug Prices. The number of generic equivalents available will increase over the next few years as many so-called blockbuster drugs lose patent protection and face generic competition.  More than 30 of the nation's 57 largest-selling drugs will lose patent protection by 2008.81  According to estimates by the pharmacy benefit manager Express Scripts, brand-name drugs with annual sales of $12 billion are expected to lose patent protection in 2006.82  From 2006 to 2010, blockbuster drugs with combined annual sales of about $45 billion per year will become available in generic form.83 

Both the Bush administration and Congress are taking additional steps to speed generic drugs to market.84  For example, generic drug producers have complained that major pharmaceutical firms delay competition through time-consuming legal maneuvers (and effectively extend the life of the original patent).  However, a regulatory change by the Bush administration that became effective in 2003 limits patent holders to one 30-month delay while contesting competition from generic products.85  Thus consumers will find more opportunities to substitute generics for brand-name medications over the next few years.

The cholesterol-lowering medication Lipitor has been the single best-selling drug for several years running.  In June 2006, a closely competing drug, Zocor, lost patent protection;86 a generic version has won tentative approval.87 As a result, the price of the generic drug will likely fall nearly 80 percent by mid-2007.  Consumers taking either Lipitor or Zocor will soon have opportunities for significant savings.88  Additionally, three of the seven popular statin drugs will be available in generic form by 2007 - up from only one (Lovastatin) in 2005.89

Chronic Disease Management.  Today, insurers and patients themselves have the ability to manage chronic conditions better.  Kaiser Permanente's health maintenance organization (HMO) and the Veterans Affairs health system have both installed sophisticated electronic medical records systems combined with chronic disease management.  Both also use generic medications whenever possible.  For instance, high cholesterol is under-treated in the United States and is thought to result in heart disease - the number-one killer of Americans.  Lipitor is a powerful cholesterol-lowering drug and the number-one seller.  Lipitor and newer drugs like Zocor and Crestor are thought to better control cholesterol than older drugs, like Lovastatin, but are more expensive.  Both the VA and Kaiser have found that by using information systems that intensively monitor progress, they can control most patients' cholesterol with less-expensive drugs.90  Controlling cholesterol through a combination of diet, exercise and generic Lovastatin may work as well or better for most people than relying on the newest drug available.

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