NCPA - National Center for Policy Analysis

Prices for Generic Drugs Rising Faster Than for Brand-name Drugs

December 27, 2002

Although generic drugs are still cheaper than brand-name prescriptions, they are rising almost twice as fast as brand-name prices. Some experts say they may not be the answer to holding down medical costs.

  • The average price of a generic prescription drug rose 15 percent from the corresponding period last year -- while prices of all brand-name drugs rose an average of only 8.8 percent, according to data from IMS Health.
  • The average price of a generic prescription increased from $12.79 to $14.70 over the year -- that compares with a hike from $70.79 to $77.02 among brand names.
  • The price of one new generic, a substitute for the ulcer drug Prilosec, one of the best-selling drugs ever, is so close to that of the brand-name that at least one large insurer is not even trying to switch patients to the substitute.
  • At the same time, manufacturers have raised prices of some older generic drugs by as much as 1,000 percent recently -- albeit from low starting points.

Generics are becoming more costly for several reasons.

  • A large number of brand-name patents expired this year and when generic-makers enter the market they typically charge much higher prices at first.
  • Generic-drug industry consolidation leaves fewer companies to compete on prices.
  • In addition, wholesalers, drug plan managers, and pharmacies have all found they can make higher profits on generic drugs than on brand-name medicines -- and still offer prices that are typically well below those of brand names.

Brand-name manufacturers must charge higher prices to recoup hundreds of millions of dollars in research and development, while generic producers can launch their products at only a fraction of those costs.

Source: Milt Freudenheim, "As Patents on Popular Drugs End, Costs for Generics Show a Surge," New York Times, December 27, 2002.


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