Easing the bite from generic drug price increases


Generic drug price hikes are not likely to disappear anytime soon. Find out why they're occurring and what can be done about them.

Easing the bite from generic drug price increases

Captopril, clomipramine, doxycycline, and digoxin are familiar therapeutic tools, long-time generic drugs. And all had dramatic price increases in 2015.

“We are routinely seeing generic price increases of 50%, 100%, 300%,” said Stephen W. Schondelmeyer, PharmD, PhD, professor and head of the Department of Pharmaceutical Care and Health System and director of the PRIME Institute at the University of Minnesota, College of Pharmacy. “Just because we aren’t seeing 5,000% increases doesn’t mean 300% increases are something we can forget about.”

Generic drug price hikes aren’t likely to disappear any time soon. The triple and quadruple digit price hikes of 2014 and 2015 have faded from the headlines. But the forces that pushed a 90-day supply of digoxin from $15 to $120 are still in play.

Historically, the generics drug market has been a deflationary environment in which prices have declined, said Tim Kosty, president of Pharmacy Healthcare Solutions, Inc. (PHSI).

“Pharmacists, patients, buyers, payers, and everyone else expected that pattern to continue,” Kosty said. “The reality is that generic drugs are a market affected by supply and demand, regulatory, manufacturing, and quality control issues, as well as other factors that can have an impact on pricing.”

The general expectation for generic drug prices to fall remains accurate, Kosty added. About 90% of generic drug prices are falling. The other 10% can wreak havoc when pharmacies are taken by surprise.         

Why prices jump

There is no single solution for generic drug price increases because there is no single cause.


Martin Shkreli became an easy target when his company, Turing Pharmaceuticals, purchased the rights to pyrimethamine (Daraprim) from Impax Laboratories in 2015 and hiked the price from $13.50 per tablet to $750.

“These kinds of significant price increases have gotten legislators at both the state and federal levels looking at the issue,” said Fred Hamlin, director of Business Development at PHSI. “That has helped tamp down some of the more egregious price increases because manufacturers get nervous when there are threats of government intervention.”

In 1953, the FDA approved Daraprim. The antiparasitic agent was such a slow seller that no generic version ever appeared. The drug is typically used to treat toxoplasmosis.

Shkreli, a former hedge fund manager, may not have understood pharmaceutical industry expectations. But his strategy of buying drugs with only one manufacturer and hiking the price is familiar.

Valeant Pharmaceuticals and other generic drug firms routinely take advantage of limited manufacturing capacity to acquire products and increase prices.

“The expectation is that once a [brand-name] product goes generic, we get eight, 10, or 12 manufacturers and the price plummets,” Schondelmeyer said. “It’s a race to the bottom and at some point, manufacturers start to drop out. You can end up with a functional monopoly, a generic product with only one manufacturer. In monopoly situations, prices tend to rise.”

Rising prices can attract new competition. But launching a new generic takes time and money. Regulatory approval can take years because of the FDA backlog of Abbreviated New Drug Applications (ANDAs).

The Agency is cutting through the ANDA backlog, but progress is slow. Continuing approval delays can extend the opportunity for functional monopolies (see sidebar).

There are also price hikes related to manufacturing delays, quality control issues, and active pharmaceutical ingredients (APIs). The FDA tightened quality requirements after 81 patients died in the US in 2008 from contaminated heparin traced to counterfeit raw materials in China. Product and API shortages are unlikely to disappear.


PBM problems

Pharmacy benefit managers (PBMs) can exacerbate price hikes. PBMs generally reimburse pharmacies for generics based on proprietary maximum allowable cost (MAC) standards. MAC lists have historically been adjusted monthly or quarterly on the assumption that generic drug prices generally fall, explained Susan Pilch, vice president for Policy and Regulatory Affairs at the National Community Pharmacists Association (NCPA).

“That lag provides a cushion when generic acquisition costs are falling,” Pilch said. “But when prices spike, pharmacies are dispensing drugs at a loss until MAC prices catch up. The longer the lag, the greater the damage to pharmacies.”

The Centers for Medicare and Medicaid Services requires MAC lists for the Medicare Part D program to be updated weekly as of January 1, 2016, Pilch noted. More than 25 states now require faster MAC updates at the urging of the National Association of Chain Drug Stores (NACDS) and other pharmacy organizations.

PBMs are also using generic drug price spikes as a pretext to impose direct and indirect remuneration (DIR) fees on pharmacies. DIR fees first appeared under the Medicare Part D program and are spreading to commercial health plans. A recent NCPA survey found that 87% of pharmacists said DIR fees significantly affect their pharmacies’ ability to serve patients and remain in business.

Pharmacy solutions

Price hikes for generics are not going away, Hamlin said. Even though most generic drug prices continue to decline, pharmacists must keep up with current and projected product shortages and delays that could affect pricing.

Pharmacies may also need to adjust their business models. When pricing is volatile, managing inventory becomes even more important. Inventory should turn over about 12.6 times yearly, every 29 days, to help protect against MAC-adjustment lags, Hamlin advised.

Clinical programs such as medication synchronization can help improve refill rates as well as boost inventory turns. Automation and other changes to improve dispensing efficiency can also help improve the bottom line.

The effect of state laws requiring faster MAC adjustment is mixed, Hamlin said. Forcing PBMs to adjust MAC pricing weekly can help limit the economic fallout from price spikes; it also removes the economic cushion when generic drug prices are falling.


“When 90% of generic drug prices are continuing to decrease, the effect for pharmacy is not a good one,” Hamlin said. “You’ve adopted policies and rules to deal with price increases, which incentivizes PBMs to decrease reimbursement as well. More frequent MAC updates can help on price increases, but it has an even larger downside effect on a larger basket of products, which proponents of state and federal MAC update laws were not anticipating.”

Product selection may be the most effective tool to cushion price hikes.

“You can help the patient and prescriber to find alternative drugs that are price competitive,” Schondelmeyer said. “If there is a good therapeutic interchange at a more realistic price, you can call the doctor and get the script changed. Better business management can help the economics, but this is an industry problem, not something created at the pharmacy level.”


GDUFA to the rescue

The FDA has always had a backlog of Abbreviated New Drug Applications (ANDAs) and probably always will. The backlog was stable at about 400 ANDAs through 2002, when priorities shifted and the generic backlog began to grow, noted industry expert Bob Pollock, senior advisor to Lachman Consultant Services. By 2015, the FDA was sitting on about 4,000 ANDAs.

The Generic Drug User Fee Amendments of 2012 (GDUFA) has helped to reduce the backlog. GDUFA is modeled on the successful Prescription Drug User Fee Act (PDUFA).

“New generics that are coming in under GDUFA are moving more quickly,” Pollock said. “The first cohort of applications submitted with GDUFA user fee dates showed 14% approvals on the first cycle. That may not seem like a lot, but first-cycle approvals for ANDAs has been below 1% historically.”

Starting in fiscal year 2017, which begins October 1, 2016, the FDA has committed to reviewing at least 90% of ANDAs within 10 months of submission. That’s good news for new generic applications, but not so good for older ANDAs.

“The FDA has a congressional mandate to reach that 90% goal,” Pollock said. “Resources will be dedicated toward GDUFA products more so than to older backlog products to help meet those goals.”

How long it takes to work through the backlog depends in large part on the volume of new ANDAs and the FDA’s resources, Pollock continued. FDA has expedited reviews in cases of product shortages or categories in which there is no generic.

“An expedited review for generics does not mean six or 12 months,” he said. “I just saw an expedited product approved in only 24 months. That’s better than the median approval time of 44 to 46 months. We are still four or five years away from dealing with the entire backlog.”


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