Cheaper Generic Drugs Help Lower Health Costs, But Big Pharma Works To Keep Prices High

A new report by Express Scripts Holding Co. finds that, while the total costs of U.S. drug payments rose slightly last year, 2012 was the first time in two decades that spending on drug treatments for common ailments such as high cholesterol and diabetes declined. That drop is largely due to Americans’ increasing use of generic — rather than brand name — medications to treat the conditions.

As Reuters reports, brand name companies have the freedom to charge higher rates on their prescription drugs for a set period of time before their patents lapse into the public domain, allowing expanded use of less costly generic drugs — a practice that is also encouraged by Obamacare:

The lower prices for common drugs came after the patents on branded versions ran out, putting cheaper generic competitors onto the market. Big pharmaceutical companies like Pfizer Inc and Merck & Co hold the patents on drugs for about a decade after they start selling them. Then competitors like Teva Pharmaceuticals Ltd can start selling their own generic versions.

President Barack Obama’s healthcare overhaul law rewards the use of generic drugs as a way to decrease healthcare spending, which rose about 4 percent last year and accounts for about 17 percent of gross domestic product.

The patent for Pfizer’s Lipitor, a cholesterol treatment that was once the world’s best-selling drug, expired in November 2011. Cheaper generics hit the market soon after, which sharply reduced spending on treatments in 2012.

“The move towards lower-cost generic alternatives has had a tremendous impact,” said Sharon Frazee, vice president research and analytics at Express Scripts.

Falling drug prices can have a tangible impact on Americans’ treatments for obesity-related illnesses that take a particularly large toll on the nation’s health. For example, the cost of high cholesterol medication fell by 10 percent for a 30-day supply — which quickly adds up for Americans who have chronic conditions like excess cholesterol and diabetes.

But Americans are denied the full benefits of falling generic drug prices due to the abundance of so-called “pay-for-delay” schemes between brand name and generic drug companies — when brand name drug companies pay off generic drug manufacturers in exchange for their consent to delay the release of a drug’s generic version into the market, a method of maximizing the brand name drug’s profitability. The Supreme Court is set to take up a caseFederal Trade Commission v. Watson Pharmaceuticals — to determine whether or not such schemes violate consumer protections and antitrust laws.

And the outcome of that decision could have a significant impact on U.S. health care expenditures. Considering the fact that the new report found the overall increase in national drug spending was driven by the high costs of specialty drugs for arthritis, cancer, and hepatitis C, which “accounted for 24.5 percent of the nation’s total spending on prescription drugs,” encouraging the production of generic prescription drugs could go a long way towards lowering health care costs.