Counter Talk: Safeguarding savings

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Counter Talk: Safeguarding savings

By Chip Davis - 02/02/2018
Patients save money with generic drugs. In 2016, atorvastatin, the generic version of Lipitor, cost 97% less for 106.3 million dispensed prescriptions. Omeprazole, the generic version of Prilosec, cost 98% less for 76.3 million dispensed prescriptions.

Overall, the 2017 Generic Drug Access and Savings Report, compiled by the Quintiles IMS Institute, found that generic medicines generated $253 billion in savings for patients and taxpayers in 2016. Since 2006, the U.S. healthcare system has saved $1.67 trillion due to the availability of low-cost generics. Savings for Medicare and Medicaid totaled $77 billion and $37.9 billion, respectively, in 2016. The government saved $1,883 per Medicare enrollee and $512 per Medicaid participant.

To achieve these savings, generic drug companies must aggressively negotiate with large purchasers who command significant leverage and gain large price concessions by pitting manufacturers against one another. When it comes to the pharmaceutical supply chain, brand-name manufacturers enjoy several advantages over generics — the manufacturers represented by the Association for Accessible Medicines. A report issued by the USC Center for Health Policy & Economics found that supply chain stakeholders capture significantly more of the revenue spent on generic medicines than they do on brands. For every $100 spent on dispensing generic medicines in this country, approximately $65 goes to the distribution and reimbursement of those products by the members of the supply chain.

In 2018, as federal and state policymakers continue to grapple with rising prices for brand drugs, the temptation may be strong to intervene at various points in the complex market. Finger pointing and complicated schemes for guarding against “price gouging,” however, are less likely to protect patients against inflationary pricing than allowing the generic marketplace to function as it was intended.

In order to understand the context in which legislators are attempting to rein in prices, let’s remember what life was like before 1984’s Hatch-Waxman Act. Generic drugs were available for only about a third of the best-selling brand-name drugs, even though their patents had expired, and manufacturers of generics had to go through a much more complicated approval process that created unnecessary cost for manufacturers. The vast savings potential of generics did not reach nearly as many patients as we see today.

Hatch-Waxman gave rise to the generic pharmaceutical industry, as we know it.

A model of bipartisan legislation, Hatch-Waxman established an expedited pathway for generic drug companies to obtain FDA approval for their products. Within a year of passage, generic manufacturers submitted 1,000 applications. At the same time, the law provided brand-name firms with incentives to innovate. “Senior citizens require more medication than any other segment of our society. I speak with some authority on that,” joked President Reagan at the signing ceremony, adding, “Elderly Americans will have access to safe and effective drugs at the lowest possible cost.” He predicted that generics might save patients $1 billion in 10 years’ time.

That $253 billion that generics saved Americans in 2016 comes to almost $5 billion every week.

Those savings could be even greater, were it not for the proliferation of anti-competitive practices that artificially extend patents. Exhibit A in this pattern: Allergan, the maker of Restasis, which paid the St. Regis Mohawk Tribe millions of dollars to rent its tribal sovereign immunity in a blatant effort to shield the patents on Restasis from review. Another maneuver is Risk Evaluation and Mitigation Strategies, or REMS, abuse, which prevents generic firms from purchasing the doses of a branded drug that they need to run their studies.

One fact remains clear: High list prices for brands, as set by the brand manufacturers, result in higher costs for patients every time. Supply chain stakeholders should work together to support policies that promote generic competition and lower prices for patients and the system, rather than misguided maneuvers that will only serve to harm competition.

Chip Davis, president and CEO of the Association for Accessible Medicines.