A new report by the US Government Accountability Office (GAO) found that the price for generic drugs under Medicare Part D fell significantly since 2010 despite some "extraordinary" increases for 315 generics.
Exorbitant drug price increases from companies such as Valeant, Horizon, Turing and most recently Mylan are driving the conversation for major changes to the way drug prices are set in the US.
To conduct its analysis, GAO looked at the cost of two groups of generic drugs between Q1 2010 and Q2 2015: 2,378 generics that either entered or exited the market during the period, and 1441 "established" generics that remained on the market throughout the study period.
While GAO found that the price of generic drugs fell for both groups studied over the six-year period, "extraordinary" price increases of 100% or more offset those declines.
When comparing the two baskets, GAO found the price index for the changing generics basket came down much more than it did for the established generics.
"Overall, prices declined by 59 percent, or 4.2% per quarter on average … While the price for our changing basket of drugs continued to fall throughout our time period, the declines were faster earlier in our study period compared to the later years," GAO said.
However, when looking at the basket for established generics, GAO said it observed a more mild decrease in prices over the early part of the study period, followed by price increases.
"We found that the price for this established basket of generic drugs decreased by 22 percent, or about 2.2 percent per quarter on average, from the first quarter of 2010 through the fourth quarter of 2012. From that point until the second quarter of 2015, however, the price of our established generic drug basked increased by 10 percent," GAO said.
Part of the difference in price trends between the two groups is explained by new entrants in the changing basket entering the market at low prices.
Extraordinary Price Increases
Over the six-year period, GAO says that 315 generic drugs in the established bucket doubled in price from one quarter to another at least once during the study period, offsetting the overall decline in generic prices.
"Drugs with extraordinary price increases moderated the overall decline in generic drug prices. Additionally, the extraordinary price increases generally persisted for at least 1 year and most had no downward movement," GAO writes.
According to GAO, 280 of the drugs had a single extraordinary price increase during the study period, while 34 drugs had two such increases, and a single drug had three. "Specifically, the antibiotic drug, erythromycin/500mg/tablet/oral, had three separate price increases of at least 100 percent, with the price of the drug increasing from $0.24 per tablet in the first quarter of 2010 to $8.96 per tablet in the first quarter of 2015."
Additionally, GAO found that the increases weren't always limited to a mere doubling in price.
"While most extraordinary price increases were between 100 and 200 percent, a small number of the increases were substantially higher … Specifically, out of the 351 extraordinary price increases, 48 were 500 percent or higher and 15 were 1,000 percent or higher," GAO writes.
Despite the sharp price increases, GAO says such drugs have a relatively low impact on benefits plans.
One reason for this, GAO says, is that the vast majority of the drugs that experienced extraordinary price increases fell outside the 100 most utilized generics.
However, GAO says this does not mean the impacts of these price increases go unfelt. "Plan sponsors and PBMs stated that generic drug prices may be a factor when evaluating prescription drug benefit design changes for Medicare Part D plans and their other insurance offerings," GAO writes.
Despite this, GAO says the stakeholders it spoke with for the review mostly pointed to other factors, such as the cost of branded and specialty drugs as having a more significant impact on insurance premiums.
In conducting its review, GAO also interviewed three large generic manufacturers (Mylan, Sandoz, Teva), and two smaller manufacturers (G&W Laboratories and Nephron Pharmaceuticals) to get their take on generic pricing.
In general, generic manufacturers indicated that competition is the biggest factor in generic drug pricing, saying that their price is often based on the price their competitors set.
However, the manufacturers also pointed to several other issues that might prompt price increases, such as active pharmaceutical ingredient (API) supply disruptions, as well as consolidation among suppliers and buyers.