HHS investigates rise in generics

July 15, 2015

The U.S. Department of Health and Human Services (HHS) will investigate how much money Medicaid has lost over the past decade paying for rising generic drug prices by comparing price increases between 2005 and 2014 against the rate of inflation.

The U.S. Department of Health and Human Services (HHS) will investigate how much money Medicaid has lost over the past decade paying for rising generic drug prices by comparing price increases between 2005 and 2014 against the rate of inflation.

Sen. Bernie Sanders (I-Vt.) and Rep. Elijah Cummings (D-Md.) requested the HHS review after pharmaceutical companies refused to comply with their request to turn pricing information over to their offices. Under federal law, drug makers are required to turn that data over to the HHS.

Nearly 10% of generic drugs more than doubled in price in a recent year, according to an analysis from the Centers for Medicare and Medicaid Services (CMS). The data also showed that half of all generic drugs went up in price between July 2, 2013, and June 30, 2014.

Related:The rising cost of generic drugs

In a letter to the HHS inspector general, Sen. Sanders and Rep. Cummings said the traditional cost savings realized by Medicaid and Medicare beneficiaries from the use of generics is threatened by spiraling prices. As a result, they want generic manufacturers to pay a rebate to Medicaid when drug rates rise faster than the rate of inflation, a provision that’s currently in place for brand-name drugs. It’s a move that the Congressional Budget Office estimates would save $500 million over 10 years.

Generics represent approximately 80% of total prescription drug volume today for managed care and nearly that much for hospitals, according to F. Randy Vogenberg, PhD, RPh, a partner at consultancy Access Market Intelligence, and principal, Institute for Integrated Healthcare, Greenville, South Carolina.

To hold down costs, most managed care and hospital pharmacy purchasing managers will continue to focus on contracting and rebates, consolidating volume where possible with a single generic manufacturer, Vogenberg says. “Should a single manufacturer raise product costs or have a production problem, then that organization could be even more vulnerable.”

Higher prices will have a negative effect on generic sales as costs shift to consumers and in turn impact adherence, persistency, and abandonment, says Vogenberg.

“From a total cost of care perspective in commercial markets, the goal is cost-effective outcomes that meet patient and purchaser [employer] expectations. In any event, failure to perform at the highest levels of care could risk loss of commercially insured patients,” he says.

“For years, PBMs have used their formularies to encourage patients to choose generic drugs by including all generics in the bottom, or lowest out-of-pocket cost, formulary tier,” says Anna Goldbeck, a principal in the National Pharmacy Practice at Buck Consultants at Xerox. “Some PBMs are reacting to the rising cost of generics by creating new tiers that require members to pay higher copayments for ‘non-preferred’ generic drugs.”

Goldbeck says factors driving price increases for generics include:

  • Consolidation among generic drug companies;

  • Shortage of raw materials;

  • Supply and demand; and

  • Regulatory issues

Clever contracting strategies, either with the brand manufacturer and/or a specific generic company offering rebates in exchange for preferred status, could offer some relief from rising prices, Goldbeck adds.

Tracey Walker is content channel manager for FormularyWatch.