NCPA - National Center for Policy Analysis

Some Generic Drug Costs Are Rising: Why?

November 25, 2014

Americans have benefited enormously from generic drugs. Scott Gottlieb, resident fellow at the American Enterprise Institute, says that the average generic drug price is 75 percent less than its brand-name counterpart. From 1999 to 2010, generic drug use saved the American health system over $1 trillion; in 2010, it saved Americans $157 billion.

Some lawmakers have recently turned their attention to generic drug costs, because a few generics have seen substantial price increases. According to Gottlieb, however, the individual cost increases are not indicative of an overall trend but have to do with the specific circumstances of the individual drugs:

  • Of the 10 generic drugs that have seen significant increases in price over the last two years, some saw their prices rise because manufacturers experienced an ingredient shortage due to closures of pharmaceutical plants.
  • Some drugs rose in price because usage fell after consumers began using competing drugs in their same class; manufacturers limited production, leading to shortages.
  • At least one of the 10 drugs faced fewer competitors after a manufacturer quit producing it. Less competition leads to price increases -- Gottlieb notes that a generic drugs needs at least four manufacturers to achieve a price that is 40 percent of the cost of the brand-name drug.

While many generic price increases were the result of individual factors, Gottlieb does suggest that generic drug prices could rise, over the long run, due to government action:

  • He notes that FDA oversight of generic drug production has increased the barriers to entry to the generic market.
  • The FDA is facing a backlog of applications for generic drugs, limiting competition.
  • Due to FDA regulation, generic drug manufacturers are now required to change their warning labels without FDA approval (previously, that burden had been on the brand-name drug makers). This will expose generic drug makers to tort liability, which will raise costs.
  • Generic drug makers are subject to heavy user fees, which only raises costs for consumers. For example, an application fee for a new generic drug costs $58,730.

These are the real problems plaguing the generic drug industry, says Gottlieb.

Source: Scott Gottlieb, "Why Are Some Generic Drugs Skyrocketing In Price?" Testimony before the United States Senate Committee on Health, Education, Labor, and Pensions, November 20, 2014. 

 

Browse more articles on Health Issues