Posts filed under ‘Generic Drugs’

The Big Bad Drug Industry?

A recent study by the Kaiser Family Foundation found that spending in the US for prescription drugs was $234.1 billion in 2008, nearly 6 times the $40.3 billion spent in 1990. Although prescription drug spending has been a relatively small proportion of national health care spending (10% in 2008, compared to 31% for hospitals and 21% for physician services), it has been one of the fastest growing components, until the early 2000’s growing at double-digit rates compared to single-digit rates for hospital and physician services.  

Since 2000, the rate of increase in drug spending has declined each year except for 2006, which was the year Medicare Part D was implemented. By 2008, the annual rate of increase in prescription spending was 3%, compared to 5% for hospital care and 5% for physician services. From 1998 to 2008, prescription drugs contributed 13% of the total growth in national health expenditures, compared to 30% for hospital care and 21% for physician and clinical services.  


Annual prescription spending growth slowed from 1999 (18%) to 2005 (6%).  The key reasons for this slowing of prescription drug spending are: 

  • Increased use of generic drugs
  • Increase in tiered copayment benefit plans
  • Changes in the types of drugs used
  • A decrease in the number of new drugs introduced.
This profile raises the question as to why the drug industry has been a major focus of the healthcare reform effort.  Sure, some drugs cost more than $100,000 per dose.  That is significant, even for people with insurance coverage, and not easily understood by many consumers and healthcare professionals.  But given the limited portion of healthcare costs due to drugs, the significant rate of introduction of generic drugs, the lack of a significant drug pipeline outside of oncology and other, select disease states, there seems to be limited room for better managing these costs.
Instead, the lack of a significant pipeline outside of oncology therapies should be a major concern.  Pharmaceuticals offer the potential to improve outcomes while offsetting hospital and other healthcare costs.  The United States should support research efforts into new therapies while encouraging appropriate choice of drug therapy and compliance with indicated therapy regimens.  Such concepts as the patient-centered medical home and value-based insurance design should make inroads.  Appropriate provider and patient education will encourage even better therapy choice and enhanced compliance.


Let’s focus our energies in areas where cost savings and improved outcomes can be gained as there is significant room for improvement in the United States.  Let’s not excessively beat up those who are seeking to improve healthcare outcomes in a cost-effective way.


June 9, 2010 at 2:17 PM Leave a comment

Healthcare reform and generic drugs

Recently, I was discussing with a MedSpan client the impact of healthcare reform on the marketing of generic and branded drugs. I thought the core of our discussion would be of interest to others.

1.Is there a reimbursement advantage/ disadvantage (beyond price i.e. loyalty, purchase of other drugs by originator, etc.) for the originator of a cytotoxic drug?

Payers are driven by purchasing the highest quality care for the lowest cost. Lowest cost is based on the purchase price less any rebates.

First-to-market branded drugs have captive markets (assuming the drug delivers clinical benefits). When branded competitors come to the market, payers will consider the following factors: 1) Do the second or third branded drug to market offer any clinical advantages? 2) What are the cost differences between the branded competitors, both in terms of price and net cost after rebates (if any)? 3) What is the market share of the second and third branded drugs to market and how is that likely to change over time? This question examines the disruption for the insurer’s market that might arise from switching to a new preferred drug. It also measures the potential impact on rebates if the rebates are based on market share.

Within this framework, first-to-market branded drugs have advantages due to prescriber loyalty unless the newly launched branded competitors offer significant clinical advantages and/or economic advantages. Please keep in mind that insurers measure significant differently than prescribers due to their different role in the healthcare market.

The launch of generic alternatives significantly changes the market due to their cost savings and clinical equivalence (assuming that is the case). Insurers quickly shift market share from branded drugs to generic alternatives once there is a significant cost differential, which is often up to 6 months after launch of the generic drug. Market share shifts can occur in just a few weeks. Therefore, first-to-market branded drugs have no reimbursement advantages or disadvantages once generic drugs are available.

2. Do payors (private/public) tend to stay with the originator or move away from originator?

Given the framework above, both public and private payers prefer to stay with an originator but will move to an alternative that offers significant clinical advantages and/or economic advantages. If the competitor offers significant clinical advantages and a cost premium, the insurer will determine if the clinical advantage warrants the cost premium. This is a complex decision that could result in equal access or preferred access for one or the other drugs. The definition of significant is primarily based on outcomes rather than convenience for the patient or physician.

3. Will Healthcare Reform change this behavior/ practice? If yes, how? If no, why not?

Healthcare reform will not change the behavior. Healthcare reform expands the size of the covered population and alters the benefit structure. It does not affect how payors evaluate alternative therapies.

However, The American Recovery and Reinvestment Act of 2009 (which is different than H.R. 1495, The Comprehensive Health Care Reform Act of 2009) invested $1.1 billion in federal initiatives to begin the important and necessary work of comparative effectiveness research (CER), a key building block in health care reform. However, whether CER can fulfill expectations of better quality, outcomes and value in health care will depend on how it is implemented. Once results of the CER are available, the data will enable payers to make more informed decisions about comparative outcomes. That data will support the analyses and decisions described above.

May 11, 2010 at 8:36 AM Leave a comment

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