More Generics Aren’t A Prescription Drug Cost Silver Bullet

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Robert Goldberg Vice president, Center for Medicine in the Public Interest
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 Are more generic prescription drugs the answer to the prescription drug affordability crisis?

President Donald Trump and Health and Human Services Secretary Alex Azar think so. “A key way to bring down costs using our market-based system is through more [generic drug] competition,” said Azar in a speech last week announcing the administration’s drug pricing blueprint.

Secretary Azar indirectly singled out Celgene and its multiple myeloma medication Revlimid as the posterchild of a drug company stifling generic competition. He said it is “a top priority to stop drug manufacturers from gaming our patent system to block generic competitors.” (Celgene has been accused of blocking generic competition by refusing to provide Revlimid samples for testing outside the tightly controlled supply chain it set up to assure safe use of the drug.)

But it’s not clear that more generic competition would reduce the prices patients pay for multiple myeloma and other prescription drugs. That’s because for most patients the list price of the drug doesn’t matter. It’s their copayment costs that determine affordability. Copays are set by pharmacy benefit managers (PBMs), which control the prescription drug market and often don’t pass along the savings from generic drug prices to patients.

Indeed, while generic drug prices have fallen, copays have increased. According to HHS, PBMs have hiked cost sharing from $130 to $690 a month, a 500 percent increase. A new study by Avalere, a health policy consulting firm, finds that senior citizens with Medicare prescription drug plans are paying more for generic prescriptions even as the market price of these drugs stays flat because the generic drugs are being placed on formulary tiers that require patients to pay higher out-of-pocket costs.

Take the story of Gleevec, a pill that treats chronic myeloid leukemia, and whose generic competitor was supposed to lower costs for those afflicted. Bloomberg News profiled the story of Donald Jones, who ended up paying nearly the same amount for the generic as he did for Gleevec. He is not the exception. The American Cancer Society found that PBMs placed generic versions of Gleevec and Etopophos, an oral drug for lung cancer, on the most expensive cost sharing tier in half of all drug plans.

PBMs often set copay costs higher than the actual cash price of the drug. New research from the University of Southern California finds that in roughly one quarter of filled pharmacy prescriptions, consumer copays exceed the cost of the drug. And by an average of 50 percent. This is costing consumers close to $2 billion a year — money that is being used to pad PBMs’ bottom lines.

For example, patients at one pharmacy in Texas were charged a $43 copay for a generic version of Simvastatin, a statin drug, that cost the PBMs only $7. In another case, Optum, the PBM owned by United Healthcare, charged consumers in New Orleans a $30 copay for a drug that cost them $10 to $12. NBC News reported that Dave Jensen, a 46-year-old firefighter from Phoenix, paid $71 for a 15-day supply of Doxycycline, an antibiotic, which was double the cash price.

These overcharges are called “clawbacks,” and they are a major cost driver for prescription drugs. What’s worst is that PBMs often put pharmacists under “gag clauses” to prevent them from disclosing to patients that they could save money by paying with cash instead of using their insurance. Given this secrecy, no wonder clawbacks don’t generate headlines like other prescription drug reforms.

In this environment, even if a generic competitor, like one for Revlimid, hit the market at a 30 percent discount to the brand price, patients would likely not see any related reduction in their copay costs.

Eliminating barriers to the approval of any new medicine — brand and generic — can help reduce prescription drug costs. But so long as the PBMs remain in control of prescription drug pricing, more generic supply won’t necessarily mean lower costs for patients.

Robert Goldberg is vice president of the Center for Medicine in the Public Interest.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.