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Generic Medications Aren’t Easy Solution to Growing Drug Expenditures

Recent years have seen increasing growth in overall prescription drug spending, driven in part by increased demand from the larger insured population and the introduction of new branded pharmaceuticals. It’s long been understood that generic and biosimilar pharmaceuticals have the potential to substantially lower drug spending, given their lower cost and equivalent effectiveness. In fact, FDA commissioner Scott Gottlieb has indicated that generics are the key to the overall strategy to reduce prescription spending. However, making the switch isn’t always easy, and may be impossible in the near future for certain high-price medications, judging by the most recent expenditure data for Medicare-covered pharmaceuticals.

According to Definitive Healthcare data, 20 branded pharmaceuticals comprised about a third of all Part D drug costs in 2015, and all but one had costs exceeding one billion dollars. The most recent data from CMS’ Medicare Drug Spending Dashboard reflects similar figures, though it also includes Part B medications. In addition, each had an average cost per prescription greater than the overall median of $161, in some cases by a factor of nearly 200. Some drugs’ total costs can be attributed to an exceptionally high volume, while others’ are clearly the product of their list prices. (It’s important to note that neither the Definitive Healthcare data nor CMS Dashboard figures include the extent of any manufactures’ discounts or rebates, so the list price may not actually reflect the true cost to Medicare. One source put the total manufacturers’ discounts in 2015 at around $13 billion.) The drugs with the highest average cost per prescription make especially good targets for generic substitutes, as price drops after the first year of non-exclusivity can be as high as 51 percent, according to the Generic Pharmaceutical Association, and grow over time. The five drugs with the highest average cost per prescription out of the top 20 can be found in the table below.

Subgroup of Top 20 Drugs With Highest Part D Spending, Top Five by Average Prescription Cost, 2015

Drug Name Purpose/Condition Treated Avg Cost per Prescription Total Cost (M)
 Harvoni  Anti-Hepatitis C  $31,028  $5,992.2
 Revilimid  Chemotherapy  $10,132  $1,887.2
 Gleevec  Anti-Cancer, Leukemia  $9,652  $985.5
 Copaxone  Multiple Sclerosis  $5,758  $1,236.2
Humira Pen  Various  $4,023  $1,013.8

Source: Definitive Healthcare

Currently, the anti-Hepatitis C drug Harvoni has the greatest overall costs to Medicare based on list price, and it is the most expensive of all part D drugs that have over 1,000 prescriptions. It serves as a good example of how some high-cost drugs will not be replaced by generics anytime soon. Approved in 2014, Harvoni reportedly offers higher cure rates than previously available medications and can be administered over a shorter period time with less severe side effects, presumably making it the current preferred treatment. However, it has extensive degrees of patent protection, and won’t be available in generic form until at least sometime past 2030, likely cementing its position as the most expensive part D medication for the next several years.

Biosimilars and generics for the other four drugs either already exist or are expected to be launched soon, but their effect on prices may not be immediate, judging by the results from past generic releases. Glatopa, a generic version of Gleevec, was approved by the FDA in June 2015, but despite having more than a 50 percent list price advantage, only had 1,582 filled prescriptions under Part D for the year, compared to Gleevec’s roughly 109,000. The generic for proton-pump inhibitor Nexium was approved in January 2015, but again, it only had a little more than a tenth of Nexium’s total prescriptions despite a $100 price difference. However, Abilify, an antidepressant that ranked 13th by total spending in 2015, became available in non-branded form after being approved in April of that year and the generic ended up reaching 72 percent of Abilify’s total prescriptions. Of course, merely because a generic was approved does not mean it is automatically a viable substitute. A new generic manufacturer may not have the production capacity to make large numbers of the drug, or prescribers may not be aware of its existence. According to the Generic Pharmaceutical Association, generic savings are maximized about six years after its initial introduction.

Other obstacles stand in the way of any rapid deployment of generic drugs. The FDA currently has a backlog of over 2,600 generic applications, which officials have attributed to the agency’s former inability to adapt to the growth of the generics market. While the FDA plans to eliminate its backlog by the end of the year, a quick FDA approval process doesn’t guarantee access to cheaper drugs. Some medications treat rare conditions with a small market base and aren’t lucrative opportunities for new generics. Other drugs only have one or two generic versions, which limits the competitive forces that can push costs down.

Despite the barriers to a quick adoption of generic drugs, the current political environment is exerting downward pressure on drug costs. Recent, high-profile price hikes of widely used medications, such as Mylan Pharmaceutical’s EpiPen, have garnered popular support for legislative action to combat higher drug prices, though it’s unclear what form it could take. The momentum could be short-lived, as prescription drug spending, while growing in recent years, is not considered the most significant driver of overall health costs. Even so, it remains a contributor, and any initiative that could make generic drugs more readily available would likely make healthcare delivery more cost-efficient.

Definitive Healthcare has the most up-to-date, comprehensive and integrated data on over 7,700 hospitals, 1.4 million physicians, and numerous other healthcare providers. Our analytics features allow users to identify commonly prescribed drugs by provider, therapeutic class, manufacturer, generic status, and more.

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