ACA means ups, downs for various stakeholders in the generics game

"The generic drug market should do better with the Affordable Care Act. Anytime you spend more on Medicaid, there will be more generic opportunities, and the health insurance exchanges will likely be generic-oriented as well," said

The ACA will lead to increased annual drug sales of approximately $26 billion by 2021, according to the Centers for Medicare and Medicaid Services. Pharmacists and the generic medication market will be the primary benefactors of the ACA in 2014 with the expansion of Medicaid and health insurance exchanges.

"Retail pharmacies will benefit from increased prescription volume and various legislative 'fixes.' However, for pharmaceutical manufacturers, the gains from increased prescription volume and expanded coverage are offset by new fees and higher rebates," said Adam Fein, founder and president of Pembroke Consulting, a Philadelphia-based management advisory and business research firm.

At the same time, retail pharmacies are also likely to lose margin because of greater insurance coverage. "Pharmacies earn much higher profit margins from uninsured and underinsured individuals, or 'cash-paying customers,'" Fein said.

According to Pembroke Consulting, when ACA is fully implemented, consumers' share of the drug spend will drop to 14%, a record low, as a result of the subsidized exchange coverage and expanded Medicaid coverage.

"It turns out that the AMP-based reimbursement limits are much lower than expected, because generic drugs are super-cheap," Fein said. However, AMP reimbursement could affect retail pharmacies less if states opt out of the expansion, as permitted by the Supreme Court in a separate case, he noted.

Pharmacy benefit managers (PBMs) will also greatly benefit from expanded insurance coverage and the launch of biosimilars, said Fein.

"The ACA authorizes a new regulatory pathway for the FDA in approving biosimilars, while also granting biologics innovative 12 years of exclusive use before a biosimilar version may be developed. [This] will create generic competition for biologics."

... New fees, higher rebates

Drug wholesalers will benefit from the increased volume afforded by the ACA, but their profits are likely to be hampered by margin pressure from generics.

"Drug wholesalers will face margin pressure on generic drug sales, because pharmacies will be more price sensitive and require bigger discounts to remain competitive," said Fein. Pharmaceutical manufacturers' gains from increased prescription volume and expanded coverage will be offset by new fees and higher rebates, he added.

Meanwhile, the projected growth in pharmacies' generic sales will depend on the implementation of Medicare Part D provisions, consultants say.

"The Affordable Care Act does shrink the doughnut hole of coverage gap in Medicare Part D, and Part D has a lot of factors that have grown generic substitution. Anytime you create a bigger disconnect between people's expenses and actual costs, you can have overconsumption,"Fein said.

Even without the ACA, generic pharmaceutical sales have been on a strong growth track and will continue to realize strong growth in the future, according to consultants. "Generics will account for $94 billion in sales between now and 2016. By 2016, several branded drugs will lose their patents," Long said.

Generic drugs' share of total prescriptions dispensed had already reached 80% by March 2012, and spending grew by $5.6 billion in 2011, according to IMS Health. In addition, generics' share of the total drug market in terms of dollars had reached 20% by March, 2012, up from 18.2% in 2011.

Generics' share of total prescriptions dispensed will reach between 85% and 86% by 2016, according to IMS. "We think that will be the peak, however, because some of the generic opportunities start to diminish at the end of the decade," Long said.

With the branded drugs that have already lost their patents – including Lipitor and Plavix – the generic drug industry, retail pharmacies, and PBMs have benefited, according to Long. "Retail pharmacies, PBMs, wholesalers, and manufacturers make more on generics than brands. If the generic brand has some exclusivity without facing other generic competition, those opportunities can be pretty lucrative."