Why Do Generic Drugs Suddenly Cost More?

Source: CBS News.com

If you’ve gone to the pharmacy recently, there’s a good chance you may have noticed the cost of a generic drug isn’t what it used to be. That’s because the prices of some generic drugs — which are comparable to a brand-name drug but generally cost less — have been on a relentless upward march, with about one out of five of the most used generic drugs increasing in price by more than 50 percent in 2013 alone.

The price jumps haven’t gone unnoticed by consumers and politicians, with Rep. Elijah E. Cummings and presidential candidate Sen. Bernie Sanders introducing a bill which would require drugmakers to provide a rebate to Medicaid when prices of generics rise above the rate of inflation. They have also asked the Office of the Inspector General to investigate. But what’s driving up the cost of these non-brand-name medications?

Here are some reasons why generic drug prices are on the rise:

Consolidation. Acquisitions within the pharmaceutical industry is often cited as a factor in driving generic prices higher. Consumers end up paying more because consolidation means less competition among generic drug makers, allowing prices to rise.

Shortages. Raw materials for generic drugs have been an issue, according to researchers. Even if several manufacturers are making a version of the same drug, raw materials are sometimes produced by only one company, adding to the risk that something will go wrong. Suppliers are increasingly located outside the U.S., which adds to chances that the supply-chain will get disrupted.

Collusion. Some lawmakers suspect collusion may be at play, as well. It’s not a wild conjecture, given the FTC’s case this week. Generic drugmakers have also been accused of joining forces to keep prices high, such as a settlement announced last year by New York attorney general Eric Schneiderman. In that case, the generic drugmakers Ranbaxy Pharmaceuticals and Teva Pharmaceuticals allegedly agreed “not to challenge certain regulatory exclusivities held by the other, served to protect each party’s market positions with respect to dozens of drugs and reduced the risk that each would face greater competition for its generic drugs,” according to a statement from Schneiderman’s office.

Prices were too low to begin with. Some pharmaceutical companies may have raised prices for generics after initially pricing the drugs too low, UCLA professor William Comanor told the Los Angeles Times. When prices are set too low, that prevents drug makers from investing in stores of raw materials. Later, that can lead to higher demand for those raw materials, prompting prices to rise, as well as the cost of the drugs.

Because they can. When a generic drug has functional exclusivity, that can lead to eventual price increases, according to Schondelmeyer’s report. This can happen when a drugmaker creates the generic in a unique form, such as offering an oral liquid when rival generics are only sold in tablet form. That can allow a generic drug maker to boost prices.

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