Generic drug prices have nearly quadrupled in the past five years — and Sen. Bernie Sanders (I-VT) has a plan to fix it.
On Monday, Sanders, who is also running for the Democratic presidential nomination, rolled out a proposal that would place strict limits on how quickly pharmaceutical companies could hike generic drug prices. Specifically, drug manufacturers would have to pay a rebate back to Medicaid if their drug prices grew faster than inflation. Rep. Elijah Cummings (D-MD) is introducing the same bill in the House.
Generic drugs are cheaper versions of drugs that have lost their patent. But in recent years, the prices for generic drugs have been rising quickly and inexplicably. One report from pharmacy benefits manager Catamaran found that consumers paid, on average, $13.14 for each prescription of the 50 most popular generics in 2010. By 2014, they paid $62.10 — a 373 percent increase.
Sanders has previously cited federal records at hearings, showing that the prices of more than 1,200 generic medications rose an average of 448 percent between July 2013 and July 2014.
Generics are supposed to make drugs cheaper. Not anymore.
Generic drugs are typically meant to make medicine cheaper, giving patients less-expensive access to the costly drug formulations that pharmaceutical companies develop. You can see this clearly in the over-the-counter market: you can get 100 generic ibuprofen pills for $7.49 — or pay $9.99 for the brand-name drug Advil.
Generic drugs now compose more than 80 percent of all prescriptions dispensed annually in the United States, and experts think that's helped slow the growth of overall drug spending.
In recent years though, the market for generic prescription medications has become increasingly expensive, with drug manufacturers hiking up generic prices. This seems especially likely to happen when there is just one drug company making the generic, giving that manufacturer pretty complete control over the prices it wants to charge.
Consider the case of albendazole, an antiparasite drug that helps kill an infection caused by worms. It's not an especially common drug because it treats a relatively uncommon problem among lower-income populations, particularly refugees and immigrants.
Albendazole's patents expired years ago but there's still only one company that makes it, GlaxoSmithKline (GSK). And recently the drugmaker has quietly hiked the price. Data published in the New England Journal of Medicine shows that the average cost Medicaid paid for an albendazole prescription has increased from $36.10 in 2008 to $241.30 in 2013.
This is the exact same drug; the only difference is that in the span of six years, its price tag rose six-fold.
And albendazole isn't alone — there is a lot of data showing a steep increase in generic drug prices. The National Community Pharmacist Association says its members have seen generic prices increase "as much as 600 percent" in recent years.
Why generic drug prices are soaring: nobody is stopping drugmakers
The United States is one of the only developed countries that do not negotiate drug prices with pharmaceutical companies.
In Spain, the United Kingdom, and pretty much all other European countries, the government sits down with drugmakers and haggles over how much it will pay. Each country uses different negotiating tactics. The United Kingdom, for example, runs its bargaining through the National Institute for Clinical Evaluation, typically known by its acronym, NICE.
The United States works differently. Federal law bars Medicare, the country's largest insurance plan, from negotiating with drugmakers. Once a pharmaceutical company sets its price, the government-run plan that insures 49 million seniors is required to accept it.
There are thousands of private insurers, though, and they often have little clout to demand lower prices. Other countries are essentially buying in bulk, like shopping at Costco. The United States does the equivalent of going to the local grocery store — and paying more.
"We don't have a NICE in the United States," said Steven Pearson, founder and president of the Institute for Clinical and Economic Reviews, a nonprofit that evaluates evidence on medical tests. "We have a system that says, ‘If it's better, we have to provide this pill, and you, the drugmaker, get to name the price.' It's not a market. It's drugmakers saying what they want."
The Sanders plan: give Medicaid a rebate on high prices
Sanders's new proposal wouldn't give the government the power to negotiate drug prices (although that is also an idea the Vermont senator supports).
Instead, it would require generic drug manufacturers to give Medicaid, the program that covers low-income Americans, a rebate for any growth in drug prices above and beyond overall inflation.
Drug companies will almost certainly oppose this idea, as it would cut into their profits — and, they'll argue, into their development of generic drugs. Sometimes they will cite a shortage of raw materials as a reason for the price hikes, and would likely point to that as reasons why they couldn't produce the drugs for less. Pharma is a strong lobby, and that (along with overall gridlock in Congress) would be a significant obstacle for this type of bill.
Still, the idea of rebates is not unprecedented in American health policy. Federal law requires that Medicaid get a 23 percent discount on all brand-name drugs' sticker prices. And individual state Medicaid programs are allowed to negotiate even lower prices with drugmakers if they so choose. The idea there was similar to the one in the Sanders bill: making drug prices cheaper for the program that serves the lowest-income Americans.