Generic Medications Make Prevention More Cost-Effective

Today’s Managing Health Care Costs Indicator is 98%

 Click to enlarge. Source 

Prevention saves lives – but it’s often stated that preventing disease can save money.   It’s intuitive – a mammogram costs far less than treatment of metastatic breast cancer, and a statin medication costs far less than bypass surgery or a stroke.

However, there are historically few medical interventions that are cost saving.  Childhood vaccinations save more money than they cost.  Preventing medical errors can certainly improve care and lower cost, although this is an internal quality improvement as opposed to a new medical procedure. 

But most prevention efforts can improve health care quality and lengthen life – but often at a considerable cost.

Researchers in this month’s Health Affairs reanalyze earlier research on cost-effectiveness, substituting current generic prices for the brand name prices used in past years when there were fewer effective generic medications available.

The good news – the cost per quality adjusted life year in this new analysis goes down between 58% and 98%.   Although the title of the article implies cost-saving, there are no “negative” costs for Quality Adjusted Life Years (QALYs);  a QALY can be purchased in some instances for as little $1022.

Further good news is that there are a number of “blockbuster” drugs going generic in the next few years.

Click to enlarge. Source above. See also article in today's Boston Globe. 

There are still challenges, though.  Many states have less effective laws promoting generic use, leading to higher use of more expensive brand name medicines when they offer little incremental benefit.   Many physicians still object to generic drugs, although laws limiting and/or disclosing pharmaceutical company gifts might change this over time.  Patients aren’t sure, either, and the different colors and shapes of generic medicines diminish their acceptability. 

We need to push hard for the most cost-effective approaches, so that we can better use our limited health care dollars.  This article shows the importance of promoting use of generic medications.

Past relevant  Managing Health Care Cost Posts:

Cost savings with generics, March, 2011

Senators Try to Undermine Generic Bioequivalents  January, 2011

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Drug Prices Still Climbing

Today’s Managing Health Care Costs Indicator is 29.3%

Click to Enlarge. Image from WSJ - article referenced below

When a drug becomes available as a generic, price drops of as much as 90% are expected within 18-24 months. 

However, the Wall Street Journal used a recent report by Barclays Capital to show what happens just before a drug loses its patent protection.  The drug price goes up – not just a bit – but a lot.  Daiichi Sankyo’s Benicar, used for high blood pressure and congestive heart failure, increased in price by 29.3% last year – a year when the overall inflation rate was negative.  The General Accounting Office reported last week that annual inflation rate for brand name medications was 8.3%, while generic priced decreased by 2.6% annually.

Why do brand name prices go up just before a medication goes generic?

When a drug is available only as a patented “brand name,” many benefit plans enforce higher member cost sharing, encouraging patients to use a similar generic, or a ‘preferred’ brand name – where there is a lower acquisition price, or a higher rebate.  Therefore, the pharmaceutical company will offer rebates and preferred pricing to increase market share.

However, as a drug loses its patent protection the manufacturer removes rebates and stops offering preferred pricing and discounts.  This could encourage patients to switch to another brand name medication – but the brand name drugs are almost always from another manufacturer, so this couldn’t drive pricing behavior.

What the pharmaceutical companies are doing is maximizing their overall yield.  When they have years of exclusivity left on a medication, they price competitively to increase the drug’s market share.  When the exclusivity is about to run out, pharmacy benefit managers are hard-pressed to engage in a campaign to demarket the medication, which will soon be available generically. Therefore, the pharmaceutical company prices the soon-to-be-generic medication price high to maximize ultimate revenue from the patent.

The pharmaceutical companies are doing exactly what we’d expect them to do in a relatively unregulated market to maximize their overall profits.

Speaking of interesting price tags, the pharmaceutical company that just gained FDA permission to market progesterone injections to prevent premature deliveries announced that the drug, which had previously been available for about $20 per injection, will now ship for $1500 per dose. 

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The AARP Faults Drug Companies for Price Increases

Today’s Managing Health Care Costs Indicator is 8.5%

Click to enlarge image 

The AARP  reported last week that brand name prescription drug prices rose 8.5% last year.    That’s substantially more than the total increase in the cost of pharmaceuticals - which was 3.2% for 2008 (last publication of National Health Expenditures  or 5.7% (CVS-Caremark- figure above).

What’s the difference?

The overwhelming majority of prescriptions (about 70%) are for generic medications.  However, the overwhelming majority of costs (about 80%) are for that minority of medications that are available in brand name formulations only.  So – generic substitution can lead to giant savings, but these can also be wiped out quickly when brand name prices go up.

The big pharmas aren’t in an enviable position.  Many ‘blockbuster’ drugs have gone generic over the past few years, and Pfizer is preparing itself for Lipitor (atorvastatin) going generic at the end of next year.   The AARP study shows that drugs about to go generic have had large cost increases in recent years.   Why is this?

It’s not to fund the research (long since paid for), but it could help underwrite new research.  It’s not to pay for marketing – the pharmas cease large-scale promotion of a drug in the months before it goes generic.  Brand name price increases are certainly not to address additional production costs – generic manufacturers will be able to produce these for pennies a pill in just a few months.  

The pharmas cannot suggest an increase in ‘value’ provided by a brand name as it nears patent expiry which could justify an increase often over 10%. 

Once again –what causes the prices of drugs about to go generic to increase?

There are a few different underlying reasons.  The first is revenue maximization.  The ability to get a high margin is about to evaporate – make hay while the sun shines!  A darker potential reason is that  the pharmas are seeking to make drugs about to go off patent look as unattractive as possible.  When  Lipitor is about to lose its patent protection, even while a similar drug simvastatin is available for pennies a pill , Lipitor goes up in price by 24%.  Sure, that will move some patients to simvastatin.   But that will diminish profits for the ‘first mover’ generic competitor, as some patients will switch to another statin medication that retains patent protection.   Flomax went up 92% over 5 years; most of that price increase was in the two years before patent expiration.   

Many pharmacy benefit managers would move drugs about to lose their patent protection to a “preferred” tier to gain savings after the drug goes generic.  However, the manufacturers would like patients to move away from drugs about to lose their patent protection – preferably to a medication that will retain patent protection for a number of additional years. 

There aren’t perfect answers here.   Most other developed countries have rigorous price controls for pharmaceutical agents, but this can stifle innovation.   Clearly, “me too” drugs can offer an opportunity to create some price competition, which helps improve value.  The pharmas used to introduce controlled release formulations for a drug about to lose patent protection; we have seen fewer of these end-runs around generic substitution recently.  New regulations to make it more difficult for the brand name pharmas to pay a generic manufacturer for a delay can drive some additional volume to the lower-cost generic earlier.

Click to enlarge image

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