A decade ago one of the causes of higher health spending was increased use of high-cost blockbuster brand-name drugs. This source of spending growth virtually disappeared in the last few years, as fewer blockbusters were introduced and patent expirations led to far greater penetration of generic drugs. The primary issue in regard to drug spending in recent years has been the alarming growth in and cost of specialty drugs. But in the last year or so, a surprising source of medication spending increases has been unit price increases in generic drugs. Given that generics account for the vast majority of all prescriptions, unit price rises have a dramatic effect on total drug spending. A paper from Elsevier looks at why the cost of these medications is increasing. (Elsevier Paper) The authors looked at the prices of over 4400 generic drugs from November 2013 to November 2014, finding an overall price increase of 8.6%. A number of drug groups had price increases of 100% or more. What factors have led to this state of affairs? One is clearly consolidation. There has been a massive wave of generic manufacturer mergers, greatly reducing the number of suppliers for many generic drugs. And there are few start-up generic drug manufacturers, although that may change if higher prices, and consequently profit margins, persist for some time. The authors also suggest that shortages are a factor in price increases, with raw material supply disruptions and regulatory issues in regard to manufacturing quality contributing. Unfortunately, one also has to suspect intentional shortages as a method to drive up prices. Demand may also be higher than anticipated and manufacturers may not have the flexibility to rapidly adapt output to demand, creating potential supply shortfalls. Regulators, as usual, are a primary source of the problem. Where have they been during all the generic manufacturer consolidation? And why haven’t they developed a better regulatory regime to avoid manufacturing problems that limit supply? Hopefully enough attention has been drawn to the problem that solutions will be forthcoming. Otherwise payers and consumers will see yet another uptick in health spending.
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About this Blog
The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry. Mr. Roche is available to assist health care companies through consulting arrangements through Roche Consulting, LLC and may be reached at [email protected].
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