Tuesday, August 12, 2014

Retail Generic Drug Inflation Reaches New Heights

Surprise! Retail generic drugs are no longer getting cheaper over time.

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.

[Click to Enlarge]

  • 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.
[Click to Enlarge]

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.
Oddly, the FDA Drug Shortage database classifies the tetracycline shortage as having been “resolved” in March 2014. Huh?

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.


  1. Volume data would merely allow us to compute the average market price change. It would not change the fact that 50% of drugs went up in price.

    FYI, here's what Express Scripts said in its latest drug trend report:

    "Per-member-per-year (PMPY) spend for medications in the anti-infectives therapy class, which include oral antibiotics, increased 6.2%, to $18.97, in 2013. The primary trend driver in this class was an increase in unit cost that was in part the result of drug shortages for commonly used therapies including doxycycline and tetracycline. Drug shortages often lead to increased drug prices."

  2. Adam,
    Have we considered that prices are going up because manufacturers can raise the prices! Once prices start goin up, all generics are fair game for price increases. Also is there any possibility that the larger chain,wholesaler relationsships are tying up manufacturer's volume, thus leading to shorter supply for many of the generics. I think this situation only gets worse, and the next step will be Payers responding with big increases in generice copays. Bye-bye $5-10 copays. The last big issue is the delay by Payer organizations and in particular Public payers is raising the reimbursement rates to retail pharmacies for generic drugs. Some states are worse than others, but some Retail; Pharmacies are losing money on generic prescriptions until the states get around to raising the product cost.

  3. Recent generic drug price hyperinflation has hit several high volume products. The most recent is the anticoagulant warfarin. With its therapeutic competition (Pradaxa et al) selling at over $8/tab why not tweak the price to something more than 10 cents/tablet?

    Tetracycline can only be considered low-volume because its return to the market (after Teva stopped its manufacture) has only been recent. Its alternatives, doxycycline and minocycline, both experienced insane price increases (doxy went from 10 cents/tab to $4.50/tab). Branded "Vicodin" (hydrocodone/acetaminophen) is now touted as "generic" but costs 10x more than the generic versions of Norco ($1.70/tab vs. $0.17) even though it has slightly less acetaminophen than the competition (and definitely not enough to matter). This is actually another trend, that of single-source generics becoming "branded" or slightly reformulated (the first example of this is when generic albuterol inhalers became "Proair" when the CFC->HFC switch occurred) with a significant price increase following.

    As noted by Bill Green the lag time for PBMs to apply the price increase data available weekly from NDC makes pharmacies very vulnerable to margin reduction (while the PBMs are more than content to pass through to employers the new rates when getting reimbursed).

    O tempora, o mores!