Generic Spending on Rise at Drug Firm
The nation’s largest pharmacy benefits manager announced Friday that it was distributing more generic drugs than brand-name counterparts, a sign that costly brand-name prescription medicines may be losing their grip on the market, leading to lower drug costs for consumers.
The trend is significant because even more generic prescription drugs are expected to hit the market in the near future. That could significantly reduce healthcare costs for some people, especially the elderly and those with chronic illnesses.
Medco Health Solutions Inc., which serves more than 55 million members through various prescription plans around the country, substitutes 54% of drug prescriptions with generic equivalents, up from 47% a year ago, the company said. Franklin Lakes, N.J.-based Medco services about a fifth of U.S. consumers with health insurance. It distributes drugs by mail or through pharmacies.
Last year, the higher reliance on generics helped Medco slow down the rise of prescription drug spending to the lowest rate of increase in more than five years, the company said. Drug spending rose 5.4% in 2005, compared with 8.5% in 2004 and 16.4% in 1999, when Medco began collecting data.
How much generic drugs can slow the overall rise of healthcare costs is hard to say. The federal Centers for Medicare and Medicaid Services estimated that total health expenditures in 2006 would be $2.16 trillion. The amount is expected to grow to more than $4 trillion in 2015.
But for individual consumers, the savings could be significant. Noreen Wenjen, a piano teacher in Torrance, said generics helped her save about $1,500 in prescription prenatal vitamins during two pregnancies.
“The generics were so much cheaper,” Wenjen, 38, said. “I took them during the pregnancy and during nursing, so yes, it adds up.”
Prescription-drug spending also slowed last year because of the withdrawal from the market of two popular painkillers, Vioxx and Bextra, over possible health risks, Medco said. The use of Celebrex, an arthritis drug, also declined after U.S. regulators warned of heart risks.
Although the drop in the use of certain medicines may be temporary, the shift to generics is much more significant, healthcare and pharmaceutical experts say. Many smaller drug plans say generics have accounted for a majority of prescriptions for some years now as employers and others who fund health plans demand lower costs.
“It is a huge part of the market,” said Chris Wright, a managing principal of ZS Associates, a pharmaceutical consulting company with offices worldwide. “The pharmaceutical companies are under a lot of pressure, but they knew this was coming.”
Wright said the industry experienced a boom in the early and mid-1990s, but many of the patents that led to those products are expiring in the next few years.
There is a pattern when a drug loses its patent protection, he said.
“It usually drops 60% to 80% of its market share in the first 12 months,” Wright said.
Within the next four years, brand-name drugs with total U.S. sales nearing $43 billion could lose their patent protection, according to Medco. Those include top sellers such as cholesterol medicine Zocor, antidepressant Zoloft and sleeping aid Ambien.
Aiding the popularity of generic drugs are state laws that allow pharmacies to offer generics.
Medco switches to brand names only if doctors specifically request the drug, said Ann Smith, a spokeswoman for the company.
