High-Cost Generics: Potential Drivers & Outcomes
The rules to the generic game are changing
In today’s rapidly evolving healthcare market, health plans are continuously challenged to identify the best opportunities to reduce costs while providing high quality care. The trend of rising generic costs is rapidly becoming one of the top concerns of health plans. Price increases for generic medications are beginning to shift the position—and arguably the intended value—of generics to payers, providers, and consumers. Recent trends with wide variance in generic drug pricing warrant a deeper look into the dynamics of the generic drug marketplace. Almost 10% of generics are now more than $50, and 4% are more than $100. By choosing a generic, providers may think they are selecting the treatment option with the lowest cost and greatest value—but this may not always be true.
Changes in generic pricing and contributing factors
Recently there has been a large increase in the number of generic medications that cost more than $75. We loosely define these as high-priced generics. The Argus clinical and data analytics team looked at the profile of high-priced generic medications and found that over 70% have an alternative safe and effective generic option available for less than $30.
- Generic manufacturer consolidation
- Shortage of raw materials
- FDA disciplinary action after inspecting generic drug manufacturing processes
- Lengthy delay in FDA’s approval process for new manufacturers
- Aging drugs with limited usage similar to “limited distribution drugs/orphan status”
- Claims of price gouging
Underscoring the need for greater price transparency
Many high-priced generics have a lower-cost generic treatment option available, but providers are often unaware of price differences. For providers to select the therapy with the greatest value (efficacy, safety, and appropriate price), generic price information must become available to providers so they can take this into consideration and discuss this with patients when making treatment decisions. Demonstrating the need for greater healthcare price visibility, a recent consumer survey revealed that three out of five Americans never ask their physician about the cost of medical services, and about one-third indicated this is because they don’t believe their physician will know the cost. As the cost burden shifts to consumers through high-deductible health insurance plans, consumers are beginning to expect their physicians to provide greater price visibility into healthcare services. This includes differences in the cost of generics to ensure they are receiving the most cost-effective care. Consumers may not even consider there could be variations in the price of generics; they might assume the term generics automatically implies the lowest price.
It’s time to explore alternatives for the generic alternative
Since the factors contributing to increasing generic drug prices are likely to remain in the coming years, health plans should anticipate the continued increases in plan costs. There are many opportunities to develop solutions and find ways to promote transparency through better communication. The impact of doing nothing is too great to ignore—when drug prices are too high, patients often become nonadherent to therapy, leading to worsening clinical and financial outcomes. With generic drug prices rising, it’s time to explore alternatives for the generic alternative.
 AIS Health Data. As generic prices rise, PBM plans include tiers, MAC tweaks. https://aishealthdata.com/news/generic-prices-rise-pbm-plans-include-tiers-mac-tweaks. Accessed October 12, 2015.
 Argus paid claims data, 2015.
 Alpern JD, Stauffer WM, Kesselheim AS. High-cost generic drugs—implications for patients and policymakers. N Engl J Med. 2014;371(20):1859-1862.
 Merrick D. What is increasing the cost of generic drugs? National Center for Policy Analysis, Policy Report No. 371, September 2014. http://www.ncpa.org/pdfs/st371.pdf. Accessed October 12, 2015.
 Business Wire. Medical costs seriously impact household budgets, yet Americans don’t manage healthcare costs. Two-thirds of Americans surprised by medical bill in the past 12 months. September 30, 2015 news report. http://www.businesswire.com/news/home/20150930006480/en#.Vhv1XPlVhBf. Accessed October 12, 2015.
 Erickson SC, Qiu W, Patel BV. Trends in high-cost generic drug utilization and spend. Am J Manag Care. 2015. http://www.ajmc.com/journals/ajpb/2015/ajpb_januaryfebruary2015/trends-in-high-cost-generic-drug-utilization-and-spend. Accessed October 12, 2015.