Generic Drug Prices Rise When Market Competition Drops

Marcia Frellick

July 03, 2017

Generic drug price increases are strongly linked to market competition, according to data published online July 3 in the Annals of Internal Medicine.

Chintan V. Dave, PharmD, from the Department of Pharmaceutical Outcomes and Pharmacy at University of Florida in Gainesville, and colleagues, say that, "Unless policies are enacted to stabilize generic drug markets in response to a decrease in competition, we may continue to see cases of generic drugs subject to large price increases."

The increases can be severe. According to an article published in the New England Journal of Medicine, the price of hypertension and heart failure drug captopril shot up by more than 2800% during 2012 to 2013, going from 1.4 cents to 39.9 cents per pill.

Findings from this study may help predict which older generics are likely to be at risk for price hikes so risk can be addressed before prices affect patient care, the authors say.

Several reasons likely cause the price increases for generics, including shortages from reduced production, but the effect of reduced consumption had not been previously studied, the authors write.

They looked at 1.08 billion prescription drug claims from commercial health plans between 2008 and 2013 to compare market competition levels and changes in generic drug prices. The link was strong between level of competition and price increase.


Level of Competition Increase in Price 95% Confidence Interval
Highest (quadropoly) −31.7% −34.4% to −28.9%
Next-highest (duopoly) −11.8% −18.6% to −4.4%
Near monopoly 20.1% 5.5% to 36.6%
Monopoly 47.4% 25.4% to 73.2%

There may be several reasons for that, the authors say. Drug companies making generics may meet with more tolerance for raising the prices in low-competition markets, especially if few good alternatives exist. Also, companies that make several drugs may raise the price of the one in the low-competition market to offset the lower gains in the higher-competition markets.

In the case of a very low competitive market, an opportunistic drug manufacturer may move in, buy the rights to a drug, and jack up the price, as happened when Turing acquired pyrimethamine (Daraprim), for example.

On the other end of the scale, "It is estimated that a generic market with 7 or more manufacturers leads to drug prices that approach the cost of manufacturing them," the authors write.

Recently, some generic manufacturers have merged, hoping to pool their market power. The largest generic drug maker, Teva, for instance, merged with the third-largest, Allergan, in 2016. But that may not be good news for drug prices, the authors say.

"Such mergers carry a risk for decreasing competition in parts of the U.S. generic drug market," they write.

The authors say a limitation of the study is that because they included only drugs that were available as generics during the study period, the findings may not be generalizable to those that became generic after 2008.

One author reports grants from the Harvard Program in Therapeutic Science, the US Food and Drug Administration, Laura and John Arnold Foundation, and Engelberg Foundation, outside the submitted work. One author reports grants from Vizient, the Oklahoma Society of Health System Pharmacists, the Premier Oncology Hematology Management Society, and the Abu Dhabi Health Services Company–United Arab Emirates and honoraria from Roseman University outside the submitted work. The remaining authors have disclosed no relevant financial relationships.

Ann Intern Med. 2017;167:145-151. Article

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