Generic Drug Prices Vary Based on Market Competition
Low levels of market competition are associated with a significant increase in the price of generic drugs, according to a retrospective cohort study published online in Annals of Internal Medicine (Ann Intern Med. July 2017).
Researchers came to their findings after studying prescription drug claims from commercial health plans between 2008 and 2013. Out of 1.08 billion prescription claims, researchers identified a cohort of 1120 generic drugs, which they categorized as having high, medium, or low levels of market competition.
Generic drugs with the lowest competition, they found, were associated with price increases of 47.4% over the study period. Those with the highest completion were linked with price decreases of 31.7%.
Low competition levels had a more pronounced effect on price for generics priced lower at the study’s start than for those with higher prices at baseline.
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The study put forth several theories on why low market competition caused drug prices to rise: manufacturers have more leeway to increase prices, and makers may seek higher prices to offset lower prices for their products in more competitive markets.
“Also,” they wrote, “only in a highly noncompetitive drug market is it possible for an opportunistic pharmaceutical firm to buy the rights to a generic drug and subsequently raise the price, as seen with the Turing and Valeant cases.”
Turing and Valeant are known for purchasing older drugs (in the case of Turing, pyrimethamine; Valeant, isoproterenol) and raising their prices by thousands of percent.
As to why more manufacturers fail to enter low-competition markets, researchers suggested the following potential deterrents: smaller markets may not seem financially lucrative, difficulty procuring competitively-priced raw materials, and the time required to gain regulatory approval.
“Unless policies are enacted to stabilize generic drug markets in response to a decrease in competition,” they concluded, “we may continue to see cases of generic drugs subject to large price increases.”
—Jolynn Tumolo
