Generic drug prices are actually falling

Despite drop, patients continue to get hit with high prices at the pharmacy for reasons that may have little to do with pharma

As pharma gets slammed for egregious pricing of life-saving medications and stories continue to make headlines – generic drug prices are actually falling.

That’s not to say that consumers aren’t still being saddled with high costs at the pharmacy, but a July 2019 paper by the National Bureau of Economic Research (NBER) that reviewed the pricing patterns of generic drugs suggests that other factors may be at play.

Although the U.S. generic prescription pharmaceutical market continues to drive overall prices downward, reductions in pharmacy price are not fully passed to patients, according to the NBER researchers.

One contributing factor to patients not reaping as much of the benefit of the generic price declines, the authors suggest, is the increase in cost-sharing: the practice of insurers offering plans that increasingly shift costs from insurers to consumers.

“Plan sponsors are opting for benefit designs that have consumers sharing a higher percentage of costs. The result is out-of-pocket costs falling less than overall generic drug prices,” said Deerfielder Vince Mellet. “Even so, the prices of generic drugs went down.”

To put these generic price increases into context, the investigators developed two price indices that capture prices of generic prescription drugs paid by consumers of private health insurance plans.

The first, direct out-of-pocket CPI, measures consumers’ direct out-of-pocket payments to the dispensing pharmacy. The second, total CPI, represents the total revenues received by the dispensing pharmacy – the consumers’ direct out-of-pocket payments, plus the amount paid to the pharmacy by the insurer on behalf of the customer.

Based on the analysis, the researchers found direct out-of-pocket CPI for generic prescription drugs declined by approximately 50 percent between 2007 and 2016, while the total CPI fell by nearly 80 percent over the same period. The investigators partly attribute the smaller reduction in the direct out-of-pocket CPI, compared to the total CPI, to consumers’ increasingly moving away from fixed copayment benefit plans to exclusively coinsurance or a mix of coinsurance and copayments.

While consumers are encountering more cost-sharing that shifts more of the drug cost burden on to them, the researchers report that, on balance in the U.S., consumers have still experienced significant price declines for generic drugs.

Given their findings, the investigators suggest that overall affordability is not the primary issue in the generic drug market and that this segment of the U.S. prescription market is not responsible for the reported growth in prices and spending for prescription drugs overall.

To get the full picture on prices in the U.S. generic prescription industry, the NBER researchers recommend taking a closer look at all components of the entire generic supply chain, from manufacturer, wholesaler, pharmaceutical benefit manager, insurer, to retailer.

To view the full paper, titled “The Price to Consumers of Generic Pharmaceuticals: Beyond the Headlines”, visit: https://www.nber.org/papers/w26120

© 2019 by Richard G. Frank, Andrew Hicks, and Ernst R. Berndt.