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Generics Substitution in the Spotlight
Decision Resources, Inc, Dec 2005, Pages: 17
Health care payers around the world favor the use of relatively inexpensive generic drugs as one of the most effective ways to curb pharmaceutical expenditures, yet some countries are only beginning to exploit the cost-cutting potential of generic medicines.
In this report, we analyze recent trends in generics substitution in the United States, France, and Germany. We discuss the growing pressure on pharmacy benefit management companies (PBMs) in the United States to dispense generics rather than branded medicines, we examine how the rapid increase in generics substitution in France has influenced the development of the French reference pricing system, and we explore the growth of the German generics market and the growing criticism of generics substitution regulations in that country. We conclude with a brief assessment of the outlook for generics substitution in these three countries and the implications for the research-based pharmaceutical industry.
Business Implications
- Increasingly, U.S. employers prefer their pharmacy benefit management companies (PBMs) to promote the use of generics rather than to pursue manufacturer discounts and rebates on branded medicines. A 2004 survey found that 77% of employers believed that it was very important for PBMs to focus on substituting generics for branded medicines. In previous surveys, maximizing manufacturer rebates generally ranked as one of employers' highest priorities, but only 44% considered this strategy very important in 2004.
- Data from a leading PBM indicate that every 1% increase in generic dispensing reduces clients' pharmaceutical expenditures by 0.6%. Members' out-of-pocket costs for generics may be 30-60% lower than for equivalent branded medicines. An internal document from one PBM revealed that, in 2001, the company was prepared to lose money on certain branded medicines to take advantage of the potential profit from generics dispensing. Through its mail-order pharmacy business, this PBM made an average loss of $1.24 on each branded drug prescription it dispensed, compared with an average profit of $21.85 on each generics prescription.
- A recent study estimated that U.S. consumers could have saved $20 billion in 2004 by more extensive use of generics in six widely prescribed drug classes (antidepressants, antihyperlipidemics, antihypertensives, calcium-channel blockers, gastrointestinals, and nonsteroidal anti-inflammatory drugs [NSAIDs]). The authors advocate therapeutic interchange—replacing prescriptions for certain patent-protected branded drugs with compounds that are available generically.
- In France, pharmacists have largely driven the recent rapid growth of the French generics market, and their enthusiasm for generics substitution has shaped the country's incipient reference pricing system. In August 2005, French pharmacists substituted generic products for an average of 61.3% of prescriptions for drugs that were outside the reference pricing system and available as generics. However, the government now appears poised to shift the onus to manufacturers by introducing automatic reference pricing two years after patent expiration. Experience suggests that expanding the reference
pricing system could impede the continued expansion of the French generics market, but this risk will not worry the government unduly—as long as overall pharmaceutical spending slows down. From the political perspective, generics are essentially a means to the end of pharmaceutical cost-containment.
- Critics of Germany's generics substitution rules have suggested that many manufacturers and pharmacists have exploited the system for their own gain. Some manufacturers reportedly circumvented the aut idem rule by making minor changes to their products to preclude substitution. A leading health insurance fund association reports that the average price differential between new generics and their respective originator brands declined from an average of 40-50% before the introduction of generics substitution to an average of 20-25% after the implementation of the aut idem rule. Furthermore, this association asserts that the prices of generic products now typically vary by just a few cents, a situation that the association denounces as 'cartel-like.' Pharmacists receive (and retain) very substantial rebates from generics manufacturers, a practice that the government is reportedly planning to outlaw.
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