GPhA report

GPhA: generics saved $227 billion in drug costs in 2015

Price growth is less than branded growth, but higher than inflation


As it has done annually for the past eight years, the Generic Pharmaceuticals Assn (GPhA) has commissioned IMS Health (now QuintilesIMS) to run the numbers on scrip volume and pharma sales to determine the cost savings from generics. The 2015 total: $227 billion, up from 207 billion in 2014, and continuing a trend that has persisted since at least 2005. Generics made up 89% of prescriptions dispensed in 2015, but only 27% of medicine spending; the rest is consumed by branded products.

credit: GPhA

credit: GPhA

“Generic drugs are the foundation of any successful effort to lower health spending and increase patient access to affordable medicine,” said Chip Davis, president of GPhA, in a statement. And, anticipating the impact of biosimilars which are now trickling into US distribution, he adds, “This report underscores the importance of policies that build on the generic drug industry’s record of significant savings and promote generic and biosimilar competition.”

There’s no question that generics have dampened the growth of pharmaceutical spending, but there are nuances that the GPhA report leaves out, overstating the “lower” health spending claim. The QuintilesIMS analysis is based on the prices of branded products just as expiry occurs, then projected forward as generics replace them. But, as the controversies surrounding Valeant Pharma and Turing Pharma last year demonstrated, it is an industry practice to jack up branded prices just prior to expiry—so there’s some overstatement of the dollar savings from that. Mylan’s troubles over EpiPen pricing involve not only the eyepopping price increases it imposed, but also its improper use of a generic categorization to sidestep mandated rebates in Medicaid and elsewhere. Moreover, the branded drug prices of QuintilesIMS’ analysis are based on the ex-manufacturer price, and don’t factor in discounts and rebates, which can affect the retail price of a branded drug by as much as 50% or more.

In addition, data from QuintilesIMS’ Use of Medicines report (published each spring) show that while 2015 generic prescribing moved slightly from 2014 to 2015 (up 2.1%), spending on generics rose by 7.4%. (Several other factors affect this, including the changing proportion of generic vs. branded prescribing, the pace of patent expiries, and whatever discounting goes on in generic price contracts.) A back-of-the-envelope calculation of generic price inflation would be 7.4% minus 2.1%, or 5.3%–and that’s higher not only in absolute terms, but also when the nearly nonexistent inflation rate is factored in. There were a flurry of reports at the beginning of this year trying to account for generic price inflation.

A counterargument to generic price inflation is that for some drugs, prices are too low—so low that they become sole-source products (or that products become short-supply, or that production ceases altogether). “Over time [payers] may be glad that prices went up, assuming the laws of supply and demand kick in to increase competition in the generic market,” was one of the conclusions of an Elsevier white paper published in 2015 on the topic. And as biosimilars enter the scene, the discounting that occurs as multiple manufacturers attack the same branded biotech product could drive “better” biosimilars out of the market.

All of which points to an intensive battle over prices, rebates and patent policies come the new year and a new Presidential administration. Hold onto your hats!

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