Medical Moment: Rocketing Costs of Generics, Why?

Medical Moment: Rocketing Costs of Generics, Why?

Telluride Inside… and Out is proud to feature the Telluride Medical Center’s MEDICAL MOMENT, a weekly column that answers common medical questions in pop culture. Have a question for the doctors? Click here to send.

Dr. Kent Gaylord answers this week’s question: Why is the price of some generic medications skyrocketing? 

Dr. Kent Gaylord

Dr. Kent Gaylord

Generic drugs are copies of branded drugs, which can only be manufactured after the brand name drug’s patent has expired. Pharmaceutical companies are given 20 years after filing their patent to maintain exclusive rights to manufacturing; the patent protection is to give companies time to recoup costs for research, development and marketing of the drug.

Before 1984, generic drug makers were required to go through the same process as branded drugs to receive approval from the FDA, which created steep financial barriers to the development of generic drugs. In 1984, the Hatch-Waxman Act allowed an abbreviated and less costly process for approval from the FDA, and this saw a huge influx of generic medications coming to market. The share of generic prescriptions filled in the U.S. increased from 18% in 1984, to nearly 80% today. On average, the cost of generic medications are 80 to 85% lower than the brand name product.

But in recent years, consumers have seen big increases in the price of generics. Why?

One of the main reasons is pharmaceutical consolidation.

When a branded drug loses patent protection, multiple generic manufactures can produce the drug and thus compete on price. But in 2009, generic drug makers began to consolidate through mergers and acquisitions, and now only two or three manufactures produce many generic drugs. With less competition, prices rise.

Another reason for the rise in prices is increased regulation from the FDA in quality control, which has forced manufactures to invest more in quality control systems. Quality and manufacturing issues can sometimes lead to drug shortages, which can result in significant prices increases, at least for the short term.

Drug companies also cite a shortage of raw materials as a reason for increased generic prices.

Pharmaceutical companies also have tricks that allow then to maintain a monopoly on manufacturing a drug, including paying other pharmaceutical companies not to produce it. These “pay to delay” deals in certain narrow circumstances can be legal, but also inevitably lead to generic prices staying high.

With the federal government taking more notice of these rising prices, we as consumers will have to wait and see what regulatory changes will occur. Current proposals include barring drug companies from charging Medicaid increases in prices that surpass the rate of inflation, and a proposal that would allow Medicare to negotiate prices with drug companies, a practice banned by Congress in 2003.

Editor’s note: The Telluride Medical Center is the only 24-hour emergency facility within 65 miles. As a mountain town in a challenging, remote environment, a thriving medical center is vital to our community’s health.

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