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The high costs associated with prescription drugs should decrease when generics enter the marketplace. Unfortunately, this is not always the case. In the United States, generics account for approximately 90% of total prescriptions. However, they make up only a small share of total drug spending.
So, why do costs remain elevated even though cheaper versions exist? Possible issues include limited competition, unclear pricing systems, and an insurance system that does not create incentives for lower pricing.
The most positive part of this scenario is that patients still have power over their drug costs. This article provides an analysis of why drug prices stay high in spite of generics, and where the disconnect occurs.
Limited Competition Keeps Price Discounts Minimal
The discounting of prescription medications from their respective manufacturer's or branded equivalents occurs primarily due to competition. The more manufacturers produce a given generic prescription medication, the greater the competition.
In theory, this should happen quickly after patents expire. However, in practice, only a few manufacturers will begin producing and marketing certain drugs, which keeps prices from falling much.
Bottlenecking Results in Higher Prices
Generic drugs may be impacted by supply issues. These issues also mean that prices will continue to rise. Many price fluctuations occur due to the following.
- Manufacturing disruptions
- Shortages of raw ingredients
- Companies exiting the market
When supply tightens, prices rise, sometimes sharply. When the price of a generic medication decreases significantly, then it is not a profitable option for manufacturers any more. They might stop producing it to focus on more profitable options.
When this ultimately leads to an insufficient number of generic drugs to meet the demand in the marketplace, there will be price increases. The cycle will then repeat, resulting in affordability problems not being solved.
Insurance Formularies Don’t Always Favor the Cheapest Option
Insurers have more influence over the cost of drugs than many people think. The formulary or list of covered medications is generated by more than just costs, and is often influenced by negotiations between an insurer and a drug manufacturer.
While lower-priced generic medications are available, manufacturers may provide higher rebates back to insurers, giving an original brand-name drug a more favorable position on a formulary. As a result, patients could pay more in their co-pay for a generic, even though it is, technically, the lower-cost medication.
This arrangement is confusing to patients trying to find the best price for their medication. The reality of not having a matching price for a covered medication is a frustrating experience.
Issues Surrounding Mental Health Medications and Pricing
One area of drug pricing that highlights existing problems is mental health. Despite the availability of generics, consumers continue to see significant price variability based on their insurance plan, pharmacy, and the availability of the medication.
Antipsychotic medications are an excellent example of this. When comparing a branded antipsychotic with its generic equivalent, the price can differ not only between the two but also among pharmacies that fill those prescriptions. If you ask the question ‘how much does Latuda cost?’ you will likely find different answers depending on where you go.
Patient Implications
Generics were created to provide functional affordability. However, real world dynamics have added complexity to this goal of affordable medications.
Once generics are released into the market, there are many instances of high priced medications remaining in circulation for significant amounts of time. Understanding the above hidden issues will help you understand where your problem lies. You can use that information to make your decision.
