Prices for generic drugs rising faster than for brand-name drugs

January 15, 2003

Free Market Foundation

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.

For text http://www.nytimes.com/2002/12/27/business/27GENE.html
For more on Economics of Drugs http://www.ncpa.org/iss/hea

FMF Policy Bulletin\7 January 2003