Our latest exclusive analysis (below) finds that half of all retail generic drugs became more expensive over the past 12 months. And some of those drugs got much, much more expensive. One out of 11 generic drugs more than doubled in cost, with some increases exceeding 1,000 percent.
Product shortages appear to be the primary culprit. How did our retail drug supply chain become so fragile?
Drop by tomorrow, when I’ll review the winners and losers from this crazy phenomenon.
To examine generic drug costs, I analyzed the National Average Drug Acquisition Cost (NADAC) data, which the Centers for Medicare & Medicaid Services (CMS) collect and publish. The NADAC figures come from a voluntary monthly mail survey of chain and independent pharmacies.
Each data file contains more than 22,000 11-digit National Drug Codes (NDCs) for brand and generic outpatient drugs. I compared the July data release (dated 7/2/14) with the previous year’s file (dated 7/4/13). After I filtered out brand-name and over-the-counter NDCs, 14,479 generic drug NDCs appeared in both data sets.
There are multiple NDCs for most generic products. However, the NADAC data report the same price for all NDCs of the same product. After I eliminated the duplicates, 2,376 unique generic products remained. I then computed the simple percentage change in the NADAC per unit for each product.
Note that the NADAC data do not reflect a pharmacy’s net actual acquisition costs, because the survey collects only invoice costs, and excludes off-invoice discounts, rebates, and price concessions. The omitted figures include volume-based rebates from wholesalers, buying groups, and manufacturers.
For more info on NADAC, see “Acquisition Cost Reimbursement,” on page 83 of our 2013–14 Economic Report on Retail, Mail, and Specialty Pharmacies.
Retail generic drugs usually get cheaper over time. By contrast, our analysis showed that the median price change was 0%. In other words, 50% of the drugs increased in cost, and 50% declined.
The chart below shows the frequency distribution of acquisition cost changes among the 2,376 generic drugs.
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- Only half of the generic drugs (49.8%) declined in cost. The median decline was -6.8%. Only 16% of the sample experienced declines greater than 10%.
- Half of the generic drugs (50.0%) increased in cost. The median increase was +11.8%, much higher than the median decrease.
- Some products had mega-increases. Among the nearly 2,400 generic drugs, 224 (9.4% of the total) increased by more than 100%. In some cases, the cost increases were substantial. The table below shows the 10 drugs with the greatest percentage increases.
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Consider the antibiotic tetracycline. The NADAC per unit for a 500 mg tetracycline capsule increased from 5 cents to $8.59 (+17,714%). The NADAC per unit for a 250 mg tetracycline capsule increased from 6 cents to $4.26 (+7,340).
These increases appear to stem from a nationwide supply shortage. Here's what the ASHP Drug Shortage website reports:
- Teva states that tetracycline capsules are “unavailable due to a raw material shortage.”
- Watson discontinued tetracycline capsules in October 2013. ASHP reports that the company "could not provide a reason for the discontinuation."
- Heritage launched tetracycline capsules in October 2013.
A few years ago, we all worried about generic injectable drug shortages. Most products had two or fewer suppliers. (See Drug Shortages and Our Fragile Supply Chain.) It’s hard to believe, but the retail generic supply chain is headed in the same direction.
Judging by recent earnings call comments from drug wholesaler executives, generic inflation is going to continue.
Tomorrow, I’ll examine the winners and losers in this unfortunate situation.