The WasteWatcher: The Staff Blog of Citizens Against Government Waste

Some Good News on Drug Prices

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


We have read a lot about high drug prices in the news lately and how politicians, including presidential candidates former-Secretary of State Hillary Clinton and Donald Trump have called for the government to “negotiate” drug prices.  But the government doesn’t negotiate drug prices.  Instead, they use price controls to lower costs, which distorts the marketplace and stifles pharmaceutical research and development.  The problems that develop with price controlling anything, including drugs, have been explained in Citizens Against Government Waste’s (CAGW) recent report, “Pharmaceutical Price Controls: A Prescription for Disaster.”

The better alternative is more competition to lower prices and that requires vibrant research-based and generic drug companies producing life-changing and life-saving drugs.  Most countries, such as member countries of the E.U. and Canada, use price controls to keep drug prices low.  But the U.S. allows research-based pharmaceutical companies to produce their therapies and negotiate their own prices, except in some government-run programs such as Medicaid and the Veterans Administration.  Once the drugs’ patents expire or are successfully challenged, generics companies step in with copies of the brand-name drugs, and prices fall dramatically.  The system works well and the proof is the U.S. accounts for approximately 42 percent of biopharmaceutical research and development in the world.  As a comparison, the entire EU accounts for 17.7 percent.

On October 19, the Generic Pharmaceutical Association (GPhA) released their new annual report, “2016 Generic Drug Savings and Access in the United States.”  The data shows the important role generic drugs play in U.S. healthcare to keep costs down.  Here are a few important stats:

  • Generic drugs are 89% of prescriptions dispensed in the U.S. but only 27% of drug costs
  • Generic drugs provided savings of $227 billion in 2015
  • Generic drugs provided savings of $1.46 trillion for 10 years (2006-2015)
  • Medicare savings: $67.6 billion in 2015, which translates to savings of $1,737 per enrollee
  • Medicaid savings: $32.7 billion, which translates to savings of $450 per enrollee
  • Biggest savings were found in mental health ($34.4 billion), hypertension ($25.8 billion), and cholesterol treatments ($24.5 billion)

 

But the news could even be better if the FDA would approve generic drug companies’ abbreviated new drug applications (ANDA) faster.  An ANDA contains the data that shows a generic company’s drug is comparable to the brand-name drug.  As discussed in CAGW’s price control report, the FDA has a backlog of 3,100 ANDAs, even though generic drug companies have paid user fees since 2012 and the agency has hired 1,000 employees to speed up drug approvals.  With fewer generic drugs in the marketplace, that means less competition and higher prices.

The law that allows the FDA to charge generic drug companies user fees for faster drug approvals will need to be reauthorized in 2017.  Congress will need to keep pressure on the FDA to utilize generic drug companies’ user fees wisely and efficently to reduce the massive backlog.

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