Rising Pharmaceutical Costs Hit the Generic Market

In 1984, the 98th Congress passed the Drug Competition and Patent Term Restoration Act, better known as the Hatch-Waxman Amendment, creating a statutory scheme wherein generic drug manufacturers will be able to put their products into the market using the pioneer (or branded) drug’s scientific safety and efficacy data. In return, the pioneer manufacturer is awarded five-years of market exclusivity before the generic may enter the market. Congress intended to allow the pioneers to recoup their capital spent on research and development as well as turn a profit, but then have prices decrease dramatically as generics enter the market. It worked as intended! The generic drug industry has been booming since its inception.

However, in recent years, drug prices have been increasing and increasing quickly. In 2013, Tetracycline, an extremely common generic antibiotic that most all of us have likely taken throughout our lives, cost only five cents per pill. In 2014, the very same antibiotic cost $8.59 per pill. This increase constitutes a 17,714 percent jump in just one year! The drastic jump in prices stands in the face of Congress’s intention with the Hatch-Waxman Amendment, but can the increase be explained by the market?

In the cases of Tetracycline, the price jump resulted from a drug shortage. Generic companies lacked the necessary raw materials to produce the drug in significant quantities. The shortage of Tetracycline continued for nearly two years. However, the Food and Drug Administration (FDA) announced that the producers now have adequate materials to produce the drug. There were also manufacturing issues associated with the shortage that have also been fixed.

The larger issue may be the market itself. When an all-star branded drug is on the market, the generic manufacturers line up to enter the market. When four or five generics enter the market, the prices drop significantly. However, without several generics of a single drug on the market, prices do not drop as dramatically. Supplies can drop for any number of reasons. Companies may simply leave the market. An FDA-inspection may lead to a temporary shutdown of a plant. Regardless, less competition means higher prices and, for the consumer, tough choices when it comes to medical care. For example, only three companies currently produce digoxin, a cheap and easy to make cardiac drug that has been around since at least 1785. At the beginning of the year, a month of digoxin cost approximately $50 (one consumer reported $1.15 for a three-month supply), but now customers are seeing prices nearing $1000 per month. Notably, the World Health Organization lists digoxin as an “essential medicine.”

Some voices, however, have expressed concerns about nefarious business practices. In 2013, the Supreme Court ruled that the Government and private parties may sue pioneer companies who pay competitors to stay off the market. The practice has caught the attention of the Federal Trade Commission (FTC) and state officials. An antitrust investigation of Lannett by the state of Connecticut found that the manufacturer had not violated any law or regulation. However, many of these price adjustments happen naturally, leaving the FTC without any options to combat the problem.

The problem has caught the attention of Congress, who requested explanation for drug price increases fourteen drug manufacturers (constituting ten of the nearly 12,000 generic drugs on the market). However, without any legal mechanism to act against the companies, Congress may have few options to deal with the issue. Sen. Bernie Sanders and Rep. Elijah Cummings have proposed a bill to require generic manufacturers to rebate Medicaid if drug costs increase faster than inflation. The CEO of Generic Pharmaceutical Association believes the legislation to be “misguided.” Whether the bill passes or not, it appears to do little to help consumers attain better access to their needed medication. Until action is taken or anticompetitive practices can be definitely proven, more and more patients will have to decide whether they can afford their medication this month.

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