The Increased Use of Generic Drugs as a Cost-Containment Method

October 13, 2015

The increased use of generic drugs has the potential to be a more effective cost-reduction tool than some of the other efforts currently in practice.

As the number of products losing market exclusivity in the coming years goes down, the number of generic medicines that can be introduced into the market may also drop, according to CPhI panel member Alan Sheppard, principal, Global Generics, Thought Leadership at IMS Health, in a report from CPhI. Sheppard says that although pharmaceutical spending across European Union (EU) member states fell by more than 2% per year between 2009 and 2012, according to estimates from the Organization for Economic Cooperation and Development, spending on pharmaceuticals is still the third-largest component of the healthcare budget after inpatient and outpatient hospital care.

Successful price reduction initiatives
According to Sheppard, there have already been many successful efforts to control drug expenditures, including mandatory price cuts; increases in patient copays; the use of drug formularies and medicine exclusions based on these formularies; and the negotiation of prices by payers and the government. Specifically, in Germany, pharmaceutical companies are required to enter into negotiations with payers to calculate rebates. In Spain, generic drug price reductions and conditional rebates helped lower costs, while actions in France allowed the country to use its rebates as adjustment variables to contain growth, says Sheppard. In the United Kingdom, the use of price caps on pharmaceutical sales to the National Health Service allowed for some financial relief.

Increased use of generics as a budgeting tool
Sheppard suggests that an increase in use of generics medicines would be a successful method to help manage the healthcare benefit budget. He points out that even though more than half of prescription medicines in Europe are generic, they only represent 25% of the total expenditure for medicines. While generic medicines are not traditionally linked to innovation, the use of generics allows fiduciary room in the healthcare budget to be able to support innovative medicines that may be more costly. Sheppard argues that, indirectly, the rise in the use of generics will foster innovation and will lower costs in the long term better than some more obvious measures, such as lowering the prices of generics. Sheppard concludes, “growth in the generics sector should be seen as a positive step and as [an] essential component of cost containment.”

Source: CPhI 2015 Annual Report