Friday, February 20, 2015

Why Are Generic Drugs Getting More Expensive?

Today’s guest post comes from Kay Morgan, Vice President of Drug Products & Industry Standards Clinical Solutions at Elsevier.

Kay discusses the factors behind recent generic inflation and argues for the value of timely drug pricing data. As you may know, Elsevier’s Gold Standard Drug Database includes a wealth of drug pricing data, including such favorites as AWP, NADAC, and state MACs. Elsevier also provides Predictive Acquisition Cost (PAC), a novel acquisition-based drug price solution.

In addition to the article below, I suggest you check out Generic Drug Price Increases: Causes and Impact, Elsevier’s new white paper on this important trend.

So…Why Are Generic Drugs Getting More Expensive?
By Kay Morgan, Vice President of Drug Products & Industry Standards Clinical Solutions at Elsevier

Over the past two years, the pharmacy industry has seen unprecedented increases in the prices of generic drugs, causing unexpected cost increases for payers and consumers. The sudden increase in generic drug prices also spurred an investigation by the United States Congress.

An analysis done in a November 2014 Drug Channels post confirms generic price inflation is a reality. The analysis shows that in the third quarter of 2014, 55 percent of generic drug prices decreased, while 37 percent increased. Among the generic drugs in this quarterly sample, 77 (3 percent of the total) more than doubled in cost. Although only a small percentage of drugs in the third quarter study incurred substantial increases, the price increases within this group were startling—over 1,000 percent.

These staggering increases prompted two members of congress, U.S. Sen. Bernie Sanders (I-VT) and U.S. Rep. Elijah Cummings (D-MD.) to introduce The Medicaid Generic Drug Fairness Act (S.2498 and H.R. 5748). This bill would require generic drug manufactures to pay rebates to state Medicaid programs for any medicine that increases in price faster than the inflation rate. This bill would also extend the existing Medicaid drug rebate inflation penalty for brand drugs to generic drug manufacturers.

Under the current law, if a brand name drug’s average manufacturer price (AMP) for a current quarter exceeds the current Consumer Price Index-Urban (CPI-U), then the drug manufacturer must pay an additional Medicaid rebate. The rebate penalty also covers additional 340B discounts when a drug’s quarterly AMP is higher than the quarterly rate of inflation. Until now, generic drug manufacturers have been exempt from both inflation penalties. The new bill would continue their exemption from 340B penalties.

Critics of the bill are concerned that it would extend to penalties for both Medicaid rebates and 340B discounts. They also feel that the new bill is based on a fundamental misunderstanding of the pharmaceutical marketplace -- unfairly blaming drug manufacturers for taking advantage of market opportunities. Critics also assert that the new Medicaid Drug Fairness Act would be ineffective in reducing generic drug prices because the factors that impact those prices are multiple and complex.

Consolidations within the generic drug industry and supply disruptions due to increased regulation have played a major part in generic price increases and drug shortages. The new Elsevier white paper, The Cause and Impact of Generic Price Increases, discusses the multiple and complex factors that are effecting the price of drugs. Read the white paper to gain insight into the impact that generic drug price inflation is having on the drug supply chain. This white paper details some of the factors driving price increases for generic drugs, including:
  • Consolidation among generic drug companies
  • Shortage of raw materials
  • Gaps in production schedules
  • Supply and demand, and
  • Regulatory issues
The Cause and Impact of Generic Price Increases also highlights some of the measures being taken to reduce the impact of generic drug inflation. Click here to read the white paper.

Fighting Generic Drug Inflation with Smart Strategies

As the pharmacy industry works through strategies to manage rising drug prices, and generic manufacturers face possible penalties, the need to access truly current drug price information and analyze pricing changes is greater than ever before.

Elsevier’s drug pricing information includes data reported directly from pharmaceutical manufacturers. These data are updated as they are received, including on weekends and holidays.

While there is no immediate or simple solution for rising generic drug prices, truly current and accurate drug price data ensures that pricing decisions are made with accurate information that reimbursements are fair and balanced, and that pricing analysis and reporting is both strong and vigilant.

For more information about why generic drugs are getting more expensive and the whitepaper “The Cause and Impact of Generic Price Increases,” please contact Loretta Lombardo.

Elsevier—The Drug Price Leader


  1. All this is fine and dandy, but when a health plan or employer
    allows the PBM to price generics at AWP-discount, the PBM can charge
    (adjudicate) as much as they want for a prescription.

    The “shortage” discussion is another means of focusing plan
    sponsors on issues other than the effect of spread pricing on the affordability
    of generic drugs for patients (particularly in HSA’s) and overall Rx costs.

  2. FTC needs to reduce consolidation of drug companies. From 20+ cos. making a product to 2 companies is a recipe for disaster. Disaster now in progress.