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The rising cost of generic drugs is even puzzling experts

Written by Ben Allen, General Assignment Reporter | Dec 11, 2014 4:00 AM

For decades, generic prescription drugs have been considered the bargains of the pharmaceutical world. An industry group says Americans have saved more than $1.5 trillion in the past 10 years on brand name drugs, thanks to generics. But in recent months, prices on some of the most popular drugs have soared, and experts are trying to figure out why.

Buying generic prescription drugs feels like trading on the stock market for Cory Minnick.

"Just seems to snowball every month, it gets worse and worse. You see stuff you used to buy for pennies for a hundred, and now you're paying $70 to $80 just to get it in," he says.

Minnick, pharmacy manager at Royer’s on Sharp Avenue in Ephrata, Lancaster County, says he’s constantly checking with his three wholesalers to see what it’s going to cost to get a drug in the hands of a customer.

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The popular antibiotic doxycycline is used to treat common problems like urinary tract infections and pneumonia. It cost a mere $20 for a 500 pill supply in October 2013. Yet this past April, its price had hit more than $1,800. Don’t do the math on the percentage increase, it could get ugly.

By the way, doxycycline has been on the market for 40 plus years, and the formula hasn’t changed.  So what’s going on here?

Drugs have "life cycles"

"These recent drug shortage and price hikes illustrate a third stage of the life cycle of a drug that we haven't really paid much attention to yet," says Jeremy Greene, a Johns Hopkins professor and author of Generics: the Unbranding of Modern Medicine.

"What happens when a drug is no longer particularly attractive to generic manufacturers? Or when the interests of the generic marketplace continue to go towards the second pipeline, the pipeline of drugs that are going off patent now and the drugs that have been off for patents for a while are no longer particularly attractive and get neglected," he says.

Greene says drugs used to have two cycles – the brand name stage, where the patent protects the work done by companies like Pfizer, and helps them recoup their investment in research.

But then the patent expires, and all manufacturers have a shot to make and sell the drug, ideally, at a much lower cost.

That what Ralph Neas, President of the Generic Pharmaceutical Association is focusing on.

"It may go up 50% or a 100%, whatever it might but you’re still in the pennies and sometimes you get up to a couple dollars. A very few number are more than that," says Neas.

Here’s what we know: In 2010, the average cost of one of the 50 most prescribed generics was $13. In 2013, it hit $62.

That data comes from Catamaran, which manages pharmacy benefits for 32 million people.

Why are prices rising?

A lot of theories are floating around, but the most prominent ones deal with raw material shortages and less competition.

"The generics industry has really consolidated quite a bit in few years into several large companies, so it's no longer accurate to call the generic drug industry little pharma, as opposed to big pharma of multinational brands," says Greene.

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Photo by Ben Allen/witf

Workers sort medications at Royer Pharmacy in Ephrata, Lancaster County.

It's a common refrain heard in every industry – through consolidation, companies can make more money because they can keep overhead down. And Greene says manufacturer in the health care world act like any other out there – always looking out for their best interests. 

Adds Neas: "Well the margins aren’t very good. Remember, they're selling them for pennies.  it’s very different than the brand business. It’s a robust industry, it's a successful industry, it's benefitted not just hundreds of millions in America but around the world, but it's also a demanding business, and the margins are low."

With all this said, one thing needs to be said – few are really noticing a change in what they pay.

That’s for two reasons: it’s virtually unheard of for insurance companies to adjust prescription drug copays in the middle of a year, and some of the increases may be built into monthly premiums for the whole system. That means even if you never get doxycycline, you still may be sharing in part of the increase.

What's next?

It may not be long before plans start to adjust, says Sumit Dutta, the Chief Medical Officer at Catamaran, the pharmacy benefits manager.

"Now we may see two tiers, one for low cost generics, one for high cost generics, so that consumers can become aware of some of the drugs that may be hundreds, if not thousands, of dollars for a generic versus the ones that are less than $15 for a generic," says Dutta.

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And that’s where the hit to the wallet could come. 

At Royer’s in Ephrata, Cory Minnick is left to call for Congress to get involved, as much as he doesn’t like how that sounds.

"I don’t see an end game. It seems as though the manufacturers right now know what they'll be able to charge," says Minnick

"It almost, I don't want to call it collusion, but it almost seems like collusion because one of the manufacturers will raise their price, and sure enough, two days later, they're all up there at the same range, and certainly their manufacturing costs haven't increased that much in the same amount of time."

The federal government is also curious as well – the Department of Justice has subpoenaed generic manufacturers to get information on their dealings with competitors.

As for relief from the price hikes on pills that have been around for decades, well, the only answer right now is to swallow them.

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