Generic Drugs, Brand Name Profits

Apr 15, 2019

A Maryland law from 2017 fined companies selling generic drugs for raising the prices 50 percent or more. In February the Supreme Court struck down the law as unconstitutional. But generics’ price spikes are a problem.

Even as most generic drug prices slowly fall, one in five generics leaps in price in five years’ time on average, often for a year or longer. Daraprim spiked from $13.50 a pill to $750 a pill a few years ago, and EpiPens went from $50 to $600 last summer—two examples among thousands.

After all, generic drugs are sold for profit by private companies just like patented, name-brand drugs, and higher prices mean higher profits.

Federal patenting began over a century ago. Under the current system, patented drug prices have risen 10 percent or more per year. A federal office issues a 20-year patent allowing one company to give a particular name brand to a drug and sell it—at any price it wants. After the patent expires, any company may apply to the FDA for approval to sell the drug using the FDA’s name for it, the “generic” name—at any price.

Customers switch to generics to try to pay less. So do government health programs, which pay nearly half of the 360 billion dollars spent on prescription drugs. Generics went from one in 10 drug prescriptions in the late 1950s to nine in 10 today.

Companies try to keep generic prices high after name brand patents expire. Competitors selling the same drug choose between robbing each other’s sales by selling for less, or colluding to spike the price. Collusion is easy for two or three companies to do. When drug companies merge, price hikes become more likely.

Maryland officials tried to stop some of these excesses of capitalist health care. But it’s like trying to stop the tide.