Want Lower Drug Costs? Increase Generic Competition

The list price of prescription drugs has already risen this year an average of 4.5%, with most of the increases coming from drugs that do not have a generic alternative. These price increases impose a greater burden on the 25% of Americans who already struggle to afford their medicines. The Kaiser Family Foundation found in 2019 that 21% of Americans have admitted to skipping medications due to cost. Missing medications can have long-term negative health outcomes like hospitalizations or disease progression due to treatment failures.

Generic drugs can offer a solution to unaffordable medication. Generics medications have the same active ingredients as the brand name drugs, but they cost up to 70% less because generic producers.

Regardless of the clear cost benefits, patients do not always have unimpeded access to cheaper generic medications. Perverse incentives for Pharmacy Benefit Managers (PBMs) to buy more expensive drugs, burdensome FDA approval processes, and pay-to-delay schemes all impede competition and reduce patient access to generic medications.

Over the last decade, generic drugs have saved patients around $2.2 trillion, according to an AAM study by IQVIA. Generics work in the same way as name brands and have the same clinical benefits. Despite using approved formulas and ingredients, generic drugs are required to demonstrate the same levels of performance and safety to receive Food and Drug Administration (FDA) approval.

The entry of new generic drugs into the market is proven to lower the cost of prescription medications. Data from a 2019 FDA study showed that 6 or more generic producers would cause prices to be 95% cheaper than the brand name alternative. An analysis by the Association for Accessible Medicine found similar results, showing that access to generics would save seniors over $4 billion per year.

PBMs, and their extensive use of rebates, deny patients access to generic medications. Large pharmaceutical companies can offer cash incentives for PBMs to only their drugs and deny access to generic alternatives. These cash incentives, offered in the form of rebates, can run into the billions of dollars making them extremely attractive to PBMS. Patients, who are never made aware of these deals, are prevented from gaining access to generics due to these incentives and a lack of transparency in the supply chain.

These opaque agreements between manufacturers and PBMs lock out generic manufacturers who can reduce prices by introducing new competition to the market. Without competition, name brand manufacturers are able to keep prices artificially high, resulting in higher out-of-pocket costs for patients.

The FDA can only approve new generics when there is no patent blocking an approval and all market exclusivities for the name brand have expired. These barriers motivate manufacturers of name-brand drugs to stack these exclusivities to block the competition from the entrance of new generics so they can continue to remain profitable.

Pharmaceutical companies also deny access to generic drugs by engaging in pay-to-delay schemes. Under these agreements, brand name pharmaceutical companies pay generic producers to withhold their products from the market, denying patients access.

Since 2001, the FTC has filed a number of lawsuits to stop pay-to-delay agreements, including 4 cases since 2019. These schemes are win-win for the companies, but consumers lose access to lower priced generics.The FTC estimates these anticompetitive deals cost consumers $3.5 billion in higher drug costs every year.

As more Americans struggle to afford medications, improved access to generics is a clear solution that will make these medications more attainable for everyday consumers. Tearing down PBM rebate walls, preventing companies from engaging in pay-to-delay agreements, and removing regulatory barriers will open up the market to more generic options, which will lead to significantly lower drug costs for patients. These steps should be taken by the FDA and Congress to guarantee generics are available and affordable to patients. Not doing so will result in more Americans missing out on the medicines they need.

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