Are laws, regs pricing consumers out of generic drugs?

A new study by National Center for Policy Analysis (NCPA) finds that generic drugs are the best bargain in the healthcare system-but that may change if recent price hikes continue.

A new study by National Center for Policy Analysis (NCPA) finds that generic drugs are the best bargain in the healthcare system-but that may change if recent price hikes continue.

Related:When cheap drugs suddenly become expensive

In "What Is Increasing the Cost of Generic Drugs?  Part II: Regulatory and Legal Reasons Generic Drug Prices are Rising," author and NCPA Senior Fellow Devon Herrick says, “Compared to the funds spent on doctors and hospitals, prescription drug therapy is a cheap. Generic drugs are especially cheap; accounting for 88% of drug prescriptions filled but only 28% of expenditures on drug therapies.”

However, Herrick says that slow drug approvals by FDA are unnecessarily holding back competition that could alleviate some of the price hikes.

“Some of the recent price spikes are unavoidable as regulatory action is taken against drug makers who are out of compliance with good manufacturing practices,” he explains. “In other cases industry consolidation has driven up the prices as the number of competitors have dwindled. But some price spikes are avoidable-basically involving firms [manufacturers and distributors] gaming the system because FDA cannot respond and approve competing new drug applications fast enough.”

Also, FDA’s Unapproved Drugs Initiative (an FDA program announced in June 2006 to remove unapproved drugs from the market) is unnecessarily driving up the cost of some old drugs, Herrick says.

“I’m not blaming FDA,” Herrick says. “But if the agency could move faster on new drug applications it would definitely solve a lot of the problems with generic drug prices that are shooting up.

“Many older drugs predate the FDA’s approval process and were grandfathered, but never officially approved, he says. “Under the previous policy, drugs already on the market could be sold if the formulation, dosage and labeling for intended use all remained identical to the way it was prior to the 1938 Act. FDA now argues that few if any old drugs whose manufacturers claim grandfathered status actually comply with this requirement.”


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Executives can find themselves in a spot where an inexpensive drug suddenly becomes very expensive. “Executives based in hospitals could find themselves in situations where an injectable, such as an oncology drug, is hard to find and cost much more than normal-and has to be procured on the gray market,” he says.

State regulations also can be an issue. “When prices shot up, many state legislators began to propose solutions that are ill-advised-such as regulating Maximum Allowable Cost lists,” Herrick says.

Related:HHS investigates rise in generics

Some states have also passed laws that ban efficient pharmacy networks and restrict mail-order pharmacies.

The NCPA study highlights several ways to lower drug bills, including:

  • Clearing FDA’s backlog of applications to manufacture generic drugs;

  • Resist passing perverse regulations designed to protect local business; and

  • Promote competition in the production of generic drugs.

There’s also been tremendous industry consolidation, according to Herrick. “The number of drug wholesales has decreased from 200 (40 years ago) to where three companies now control between 85% and 90% of the market,” he says. “Chain store pharmacies now dominate major metropolitan areas and a handful of group purchasing organizations dominate hospital supplies. Hospitals are consolidating, as are health insurers. I’m not convinced consumers are better served by having healthcare turn into oligopoly suppliers.” 

Herrick advises that if you know there conditions can occur without warning, you can better plan.

“Carefully manage your supply chain,” he says. “Cheap drugs that only have one distributor or one manufacturer are good candidates to have their prices raised. If possible, have enough on hand to avoid supply shocks.”