Generics Brought Down Common Drug Prices in 2012

05.03.2013 -

Cheaper generic drugs in 2012 brought down spending on treatments for common diseases like high cholesterol for the first time in 20 years, according to a report from the largest manager of U.S. pharmacy benefits.

A rise in spending on specialty drug treatments offset that decline, however, and drove total U.S. payments for prescription drugs up 2.7% last year, Express Scripts Holding said on Tuesday.

Spending on drugs to treat high cholesterol and high blood pressure fell 1.5% among customers who receive their prescription benefits through commercial insurers, the report said.

For Express Scripts, profit margins on generic drugs are higher than those on more-expensive branded drugs. Companies that provide their employees' insurance also encourage the use of generic drugs to bring down their healthcare costs.

The lower prices for common drugs came after the patents on branded versions ran out, putting cheaper generic competitors onto the market. Big pharmaceutical companies like Pfizer and Merck & Co hold the patents on drugs for about a decade after they start selling them. Then competitors like Teva Pharmaceuticals can start selling their own generic versions.

President Barack Obama's healthcare overhaul law rewards the use of generic drugs as a way to decrease healthcare spending, which rose about 4% last year and accounts for about 17% of gross domestic product.

The patent for Pfizer's Lipitor, a cholesterol treatment that was once the world's best-selling drug, expired in November 2011. Cheaper generics hit the market soon after, which sharply reduced spending on treatments in 2012.

"The move towards lower-cost generic alternatives has had a tremendous impact," said Sharon Frazee, vice president research and analytics at Express Scripts.

In commercial insurance plans, the average price of medicine for high cholesterol fell nearly 10% to $47.87 for a 30-day supply in 2012.

Express Scripts processed 1.4 billion prescriptions in 2012, including for Medicare insurance for elderly people and Medicaid for the poor and disabled. It prepares separate reports for those sectors.

The company said this was the first decrease in commercial insurance prescription spending for the most common drugs since 1993, when it began collecting data.

Spending on specialty medications, which include rheumatoid arthritis, cancer and hepatitis C drugs, rose 18.4% in 2012. These specialty drugs, which can cost more than $10,000 per month, accounted for 24.5% of the nation's total spending on prescription drugs.

Prescription drugs for diabetes accounted for the biggest share of customer outlays on any treatment class. Spending on those medicines rose 11%, outpacing 2011's increase of 7%.

Both the cost and use of diabetes drugs went up, Frazee said. About one-third of Americans are diagnosed as obese, which has led to an increase in the number of people diagnosed with diabetes.

Spending on hepatitis C increased 34%, more than any other type of treatment, primarily because of two new drugs that hit the market in May 2011 - Vertex Pharmaceuticals's Incivek and Merck's Victrelis. Spending is due to increase 32% in 2013 and another 56% in 2014, the report said.

Prices of brand-name drugs rose 12.5% in 2012, according to the Express Scripts Prescription Price Index, which is based on a basket of the most highly used of those medications.