In recent years, several older, off-patent drugs have not attracted generic competition, allowing their manufacturers to implement substantial price increases.1, 2 Since 2017, the Food and Drug Administration (FDA) has taken steps to encourage generic competition for these “single-source” drugs. Policymakers and politicians have proposed more aggressive solutions, such as allowing importation from manufacturers supplying other countries or instructing the federal government to manufacture these drugs itself.2, 3 We estimated federal spending on off-patent drugs that lack generic competition and potential savings available from policies targeting this cohort of drugs.
METHODS
Using the FDA’s published List of Off-Patent, Off-Exclusivity Drugs Without an Approved Generic (June 2019 version),4 we excluded duplicates, drugs not listed in the Medicare or Medicaid Drug Spending Dashboards, and drugs with direct generic competition or competition from near-identical products (i.e., same formulation and ingredient) by October 2019. Because Spending Dashboard data aggregate costs for drugs with multiple formulations, we excluded drugs if only one of several formulations lacked generic competition.
We obtained 2018 annual drug spending from the Medicaid and Medicare Parts B and D Spending Dashboards. We estimated average Medicare Part D (41%) and Medicaid (60%) rebates from federal reports. In sensitivity analyses, we widely varied rebate estimates (Medicare Part D 20–60%, Medicaid 30–100%). Rebates for older, brand-name drugs may reach 100% in Medicaid due to annual supplemental rebates accounting for price increases over inflation. Drugs paid through Medicare Part B are not subject to manufacturer rebates.
We calculated total and median spending for all drugs in the cohort and the 20 drugs with the highest federal spending in 2018. We estimated potential savings from policies to increase competition or reduce prices by assuming spending reductions of 20–80%, based on previous estimates.5
RESULTS
Among 330 drugs on the FDA list that lacked generic competition, our final cohort consisted of 137 (42%) single-source drugs with available Medicare or Medicaid spending data in 2018. Fifty-seven (42%) were orally administered, 35 (26%) were injected, and 45 (33%) had another route of administration (e.g., topical, inhaled).
The median post-rebate federal spending per drug was $0.6 million (interquartile range $0.09–4.7 million), for a total of $1.6 billion for all drugs in the cohort (Table 1). Varying rebate estimates led to a total spending range of $1.0–2.2 billion. The top 20 drugs—15 of which were not orally administered—accounted for 89% of total spending (Table 2). Assuming policies to increase competition or reduce prices would have reduced spending on these drugs by 20–80%, federal savings would have ranged from $328 million to $1.3 billion in 2018.
DISCUSSION
Policies to improve competition or reduce prices for off-patent drugs lacking generic competition would save the federal government around $1–2 billion annually. Price spikes among this cohort of drugs have attracted significant attention from policymakers and politicians over the last several years. However, because most of these drugs target a small number of patients, spending on them represents a small minority of the more than $100 billion in annual drug spending by Medicare and Medicaid.
Many of these single-source drugs are essential medicines, and price hikes resulting from lack of generic competition have been burdensome for patients who depend on them. There may be strong public health incentives to reduce cost and improve access for these drugs. However, such policies are unlikely to curb overall federal prescription drug spending.
Our cohort includes just under half of all “single-source” drugs reported by the FDA. However, most drugs were excluded for unavailable spending data, likely due to small utilization, and in our cohort, the top 20 drugs accounted for 89% of spending.
We did not account for spending by private payers, which would benefit from competition on these drugs and add to societal savings. Additionally, many drugs have at least one generic competitor but fewer than the 3 or more needed to generate major price reductions.5 Policies to address limited generic competition could possibly extend to drugs with 3 or fewer competitors as well. Conversely, some drugs in our cohort may lack competition because they are technically challenging to replicate in generic form, such as inhalers and topical formulations. In these cases, enhanced government negotiating power may be needed to reduce prices, as has recently been proposed in Congress.
References
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U.S. Food and Drug Administration. List of Off-Patent, Off-Exclusivity Drugs without an Approved Generic. https://www.fda.gov/drugs/abbreviated-new-drug-application-anda/list-patent-exclusivity-drugs-without-approved-generic. Published June 2019. Accessed October 23, 2019.
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Funding
This work was supported by Arnold Ventures. Dr. Kesselheim’s work is also supported by the Harvard-MIT Center for Regulatory Science.
This study was not submitted for institutional review board review because it is based on publicly available data and involved no health records (45 Code of Federal Regulations [CFR] 46.102).
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Rome, B.N., Kesselheim, A.S. Federal Spending on Off-Patent Drugs That Lack Generic Competition. J GEN INTERN MED 36, 821–823 (2021). https://doi.org/10.1007/s11606-020-05752-y
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DOI: https://doi.org/10.1007/s11606-020-05752-y