A new study finds that generic drugs are a good deal for consumers; even given the cost-shifting that comes with some health plans, generic prices have gone down steadily in recent years. However, the move to high-deductible health plans means that consumers have seen fewer overall savings than they might have.
The study by the National Bureau of Economic Research (NBER), assisted by a grant from the National Institutes of Health, looked at prices for generic drugs between 2007 and 2016. The researchers noted that media accounts have reported sharp increases in specific generic drugs. A 2018 study by USC found an increase in cases of price increases for some generic drugs—but even that study found increases in less than 5 percent of all generic drugs.
Lower prices mirrored in two cost indexes
Of course, a sharp price increase can be significant, even devastating, for consumers who rely on a specific drug. But for the vast majority of the market, the NBER study shows, generic costs have continued to go down.
The study looked at two consumer price indexes (CPIs), a direct out-of-pocket CPI, which measured consumers’ direct out-of-pocket payments to the dispensing pharmacy, and a second total CPI that represented the total revenues received by the dispensing pharmacy. This second CPI consisted of the consumers’ direct out-of-pocket payments, plus the amount paid to the pharmacy by the insurer on behalf of the consumer.
The researchers found that between 2007 and 2016 direct CPI fell by approximately 50 percent, while the total CPI fell by 80 percent. The difference may reflect some cost-shifting to consumers, but both indexes show a steady decrease in prices.
“The smaller decline in the direct out-of-pocket CPI than in the total CPI is due in part to consumers’ increasingly moving away from fixed copayment benefit plans to pure coinsurance or a mixed package of coinsurance and copayments,” the study said. “While consumers are experiencing more cost sharing that in fact shifts more of the drug cost burden on to them, on balance in the US consumers have experienced substantial price declines for generic drugs.”
Deductible resets and a sawtooth decline
One interesting result in tracking the CPI numbers is that when charting the strictly out-of-pocket costs, the results shows a sawtooth effect; costs shoot back up at the beginning of the calendar year when deductibles are reset, only to fall again as plan thresholds are met. Even with the yearly uptick, the overall prices in this index continued to fall over the study’s time period, the researchers note.
The report concludes by saying that despite individual cases of generic drug price increases, the overall trend of costs has continued to move downward.
“The U.S. generic prescription pharmaceutical market continues to drive overall prices downward,” the report said. “Thus, our evidence suggests that overall affordability is not the main issue in the generic drug market and that this segment of the U.S. prescription drug market is not responsible for reported growth in prices and spending for prescription drugs overall.”
However, the conclusions also underscored the fact that the full benefit of lower prices is not being passed on to consumers. Even though consumers overall have seen substantial price declines overall with generic drugs, the report said, “Our evidence finds that consumers are experiencing more burdensome cost sharing and that in fact consumers are bearing a greater share of generic drug costs.”