April 06, 2015 News

The True Culprits Behind Rising Generic Drug Costs

For years, health plans – like CDPHP – have encouraged members to request generic drugs as a way to save money. Generics, which are chemically identical to their brand-name counterparts, are created after a drug patent expires. They can often be sold at a fraction of the price because the manufacturer doesn’t assume the cost of developing the drug. However, the recent rise in the cost of many generic medications is causing major concern among health industry experts as doctors, patients, and health plans run out of alternatives for pricey prescriptions.

The Facts and Only the Facts

Over the last 12 months, one in 12 generic drugs has doubled in cost, with some price increases exceeding 1,000 percent. For example, the cost of a 500 mg capsule of tetracycline, a common antibiotic, shot up from 5 cents to $8.59. That’s a 17,000 percent increase.

Then there’s the popular asthma medication, albuterol sulfate, which increased from $11 to $434. That’s a nearly 4,000 percent increase.

What’s more confusing is that many of these drugs have been on the market for decades. Take insulin, for example. The first patent, which sold for a $1, was created in 1923. Ninety-two years – and 5 million insulin-dependent Americans later – there’s still no generic.

So what’s to blame?

The Patent Problem

In the case of insulin, the problem lies in a patent-protecting technique known as “evergreening.” Here’s how it works: Every couple of years, when a patent is about to expire, pharmaceutical companies make minor improvements to existing drugs. They argue to the FDA that the “new” drug is bigger and better, and they’re often granted a patent extension. The result, in the case of insulin, has been 92 years of patent protection.

Then there’s a practice known as “pay-for-delay.” In 2012, the Federal Trade Commission (FTC) found that dozens of drug makers paid generic manufacturers to delay the release of certain medications. By keeping generic competitors off the market, the FTC estimates that Americans spend $3.5 billion more per year on brand-name drugs.

Lobby, Lobby, Lobby!

When patent protecting techniques like evergreening and pay-for-delay don’t work, Big Pharma has another major weapon in its war chest: Cold. Hard. Cash.

According to the Center for Responsive Politics, the pharmaceutical industry has spent a staggering $5 billion on lobbying since 1998 – more than any other industry in the U.S. – and 42 percent more than the insurance industry, which, by the way, includes health, life, property, and auto insurance.

With more than 1,400 registered lobbyists, Big Pharma has doled out more than $150 million in campaign contributions since 1990.

The Urge to Merge

Another major factor contributing to the rising cost of generic drugs is consolidation. As with other sectors of the health care industry, mergers and acquisitions are occurring at a dangerous pace among pharmaceutical companies and are having a big impact on competition.

Over the last 30 years, roughly 110 pharmaceutical companies have consolidated to about 30, leaving fewer companies fighting to create and compete over about-to-expire patents. The problem is only getting worse. In 2014, Big Pharma saw a record $212 billion in merger activity.

Winners and Losers

As drug companies continue to post profits averaging 20 percent, a study from the U.S. Centers for Disease Control and Prevention found that nearly one in 10 adults don’t take prescribed medications because they cannot afford them.

As a physician and health plan CEO, I find it unconscionable that pharmaceutical companies are allowed to engage in these immoral, and often illegal, practices. I encourage you to share this blog post with your friends, family, colleagues, and elected officials so we can continue to shine the light on the true culprits behind rising health care costs.







John D. Bennett, MD, FACC, FACP
About Author

Dr. Bennett was named president and CEO of CDPHP in 2008, after serving as chairman of the board since 2003, vice chairman since 1999, and board member since 1996. Prior to working at CDPHP, Dr. Bennett served as chief of the division of cardiology at Albany Memorial Hospital, was a member of Northeast Health Systems’ board of directors, and chaired the department of medicine. Dr. Bennett also served as CEO of Prime Care Physicians, PPLC, where he practiced cardiology with Albany Associates in Cardiology. Dr. Bennett chairs the board of directors for the Albany-Colonie Regional Chamber of Commerce and the Healthcare Information Xchange of New York (Hixny). In addition, he is a member of the boards of the Alliance of Community Health Plans, America’s Health Insurance Plans, Colonie Senior Service Centers, the American Red Cross of Northeastern New York, the Center for Economic Growth, New York eHealth Collaborative (NYeC), and the Palace Theatre. Dr. Bennett earned his medical degree from SUNY Downstate Medical Center, Brooklyn, and a bachelor’s degree from Rensselaer Polytechnic Institute. He completed his residency in internal medicine as well as a fellowship in cardiovascular disease at Albany Medical Center. Currently, he is a Fellow of the American College of Cardiology and the American College of Physicians. Dr. Bennett is board certified by the National Board of Medical Examiners and the American Board of Internal Medicine, with subspecialties in internal medicine and cardiology.

2 Responses to “The True Culprits Behind Rising Generic Drug Costs”

  1. Virginia Duncan

    Excellent article!. Too many times people outside of the healthcare industry place the blame of rising health costs on healthcare insurance companies. This article will certainly help me explain it to my family and friends. Thank you.


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