Prices For Many Generic Drugs Rising Faster Than Inflation

Prices rose faster than inflation for 22% of top generic drugs reviewed between 2005 and 2014, according to a report released Thursday by HHS’ Office of Inspector General.

Had those generic drugs been subject to the same requirement that branded drugs face—where manufacturers pay additional rebates to Medicaid when the price of a drug increases faster than inflation—Medicaid would have pulled in $1.4 billion in rebates for the top 200 generic drugs, according to the report.

The OIG produced the report in response to a request from Congress to examine recent increases in generic drug prices and the effects of those prices on Medicaid and Medicare drug spending. In recent months, Congress has upped its scrutiny of rising drug prices.

Some of the attention stems from the now-infamous announcement by Turing Pharmaceuticals and its CEO, Martin Shkreli, that the company planned to raise the price of generic drug Daraprim, which is used to treat toxoplasmosis, from $13.50 to $750 a pill.

Turing has since backed away from that plan, and on Thursday Shkreli was indicted for alleged securities fraud. The charges were not directly related to the drug price increase, according to the Associated Press.

In this latest report, the OIG didn’t make any recommendations, noting that that the two-year budget deal recently passed by Congress would extend the rebates to generics starting in 2017. In a previous, similar report, OIG had recommended CMS consider seeking legislative authority to broaden the rebate program.

Erin Fox, director of drug information at the University of Utah Health Care’s Drug Information Service, said applying the rebates to generics might lead generic manufacturers to rein in price hikes to avoid having to pay the rebates. Or, she said, manufacturers could go in the opposite direction and raise prices even higher to make up for the rebates.

Lawmakers who support the change say applying the rebates to generics will help keep prices down.

“It is unacceptable that Americans pay, by far, the highest prices in the world for prescription drugs,” Sen. Bernie Sanders (I-Vt.) said in a May statement after introducing legislation proposing the rebate change. “For years, generic drugs have made it possible for people to buy the medicine they need at lower prices,” said Sanders, who is running for the Democratic nomination for president. “We need to make certain that generics remain affordable.”

Others, however, fear that applying the rebates to generics will hurt the industry and consumers who rely on generics as lower-priced alternatives to brand-name drugs.

In a recent op-ed in The Hill, Chip Davis, CEO of the Generic Pharmaceutical Association, warned that applying the rebates to generics “will add significant hurdles to generic drug investment and development, making it more challenging for generics to serve as a viable alternative to more expensive brand medications for patients and payers—the exact opposite of what both patients and payers need.”

Dana Goldman, director of the Schaeffer Center for Health Policy and Economics at the University of Southern California, said that if the rebates sink manufacturers’ profits too much, competitors could exit the market leaving single suppliers with the ability to raise prices significantly such as what happened with Turing, he said.

If anything, this latest OIG report should be evidence that the generics market is already working well as it is, he said.

“You could say for 80% of the drugs, the price competition is quite thorough and robust,” Goldman said, referring to the 78% of generic drug prices reviewed in the report that were not rising faster than inflation.

The percentage of generic drug prices rising faster than inflation also seems to have fallen over time. A previous OIG review on the same topic for 1991 through 2004 pegged the amount of generic drug prices rising faster than inflation at 35%. Had the rebates been applied over that time period, Medicaid would have pulled in an additional $966 million for the top 200 generic drugs, according to the OIG.

Goldman said he’s more concerned about companies such as Turing pumping up prices by astronomical amounts than he is about prices for some drugs rising slightly faster than inflation.

John Rother, president and CEO of the National Coalition on Health Care—whose members include providers, unions, insurers and employers—said the OIG report merely describes what’s been an ongoing issue in the generics industry. He said when it comes to the problem of rising drug prices, branded drugs are the real culprit.

Rother has headed a campaign to lower drug prices in recent years.

“It’s hardly the major issue in the prescription drug pricing debate,” Rother said of generics pricing. “It’s a pretty small piece of the pie.”

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