Today's ASHP Daily Briefing (8/3/2017) contained an entry for a
Washington Post article entitled "Thin Margins for Generic Drugs Reduce Competition". The article was an interesting read. A word of warning, the link has so much advertising content that it is hard to get to the detail in the article. I found it worth the effort.
Now, I don't really have a dog in this fight, and haven't had for years, but the article surfaced questions in my mind that I have long had about whether or not our purchasing practices were part of the problem.
Most of us look forward to a drug product "going generic" with the expectation of its price decreasing. As stewards of the health-system's drug budget, that should be only natural. That expectation is based on the notion that there is sufficient room between the cost of the originator branded product and the cost of licensing, manufacturing, selling and distributing the generic equivalent that competition will drive down the price.
The import of this article is that this expectation has turned out not to be true. Indeed, it appears that market forces drive the prices down so quickly that most generic providers don't last in the marketplace for more than a few years, and that, over the long term, the markeplace finds there to be a monopoly, of duopoly of providers for the generic item.
While much public blame has been placed on the originating manufacturers for attempts to suppress the entry of generic competitors (and some of that may be true), information in this article suggests rather that market forces quickly drive generic competitors out of the marketplace. This article asserts "... according to the FDA, more than half of its approved generics are not being sold and another 14% are of unknown marketing status". so, in general, the competition needed to maintain lower prices in the marketplace is just not occurring, because there are not enough competitors. The article goes on to opine "The low price may have been too low for some companies to make money, or the thin margins may have led companies to make a business decision to devote their infrastructure to making a more lucrative drug."
While the article leaps to ideas where changes in public policy might help alleviate the problem, it is quick to note that public policy alternatives to keep manufacturers in the generic manufacturing business are harder to come by. Notions like federal intervention in business decisions, importatio of foreign drug products, or nationalization of our pharmaceutical manufacturing processes seem to me to be disquieting.
What does seem clear to me is that, if we expect market competition forces to keep drug prices in check, then we have to work to help keep those market forces operating.
So I find myself asking whether or not there may be things we are doing that makes this problem worse. I don't know the answers, but have a few questions:
Do our current purchasing systems add cost to the selling process that makes it harder for generic providers to remain in the game?
Do our current purchasing processes and behaviors make it too risky for generic manufacturers to commit to contracted purchases?
While there can be no doubt that some gouging has been going on, do we understand enough about the market dynamics that our pricing expectations are reasonable enough to maintain the participation of generic manufacturers over the long haul?
I don't know the answers to these questions. Maybe the answers are no, no and yes. Maybe not.
It seems clear, however, that if we want our drug shortage problems to abate, and our prices to remain in control, we need a more robust competitive landscape than we currently have. As much as we might wish it were otherwise, we own this, at least as far as health-system pharmacy is concerned. Are we part of the problem, or part of the solution?
What do you think?
Dennis A. Tribble, Pharm.D., FASHP
Ormond Beach, FL
DATdoc@aol.com
The opinions expressed herein are my own, and not necessarily those of my employer or of ASHP.