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WHY DO GENERICS COST LESS?

Updated on August 29, 2012

Where Genercis Come From

WHY GENERICS COST LESS

As a pharmacist, one of the more frequently asked questions I receive is about the cost of generic medications. Sometimes generic medications are SO MUCH less expensive than their brand-name counterparts, that patients begin to wonder - and rightly so - about the real difference between them. Are they really the same? If so, why do they cost so much less?

The cost of generic prescription drugs is an important issue for several reasons:

  1. Conventional wisdom says that "you get what you pay for." If generic drugs are exactly the same as a brand name, we would expect them to cost about the same. But they don't. In fact, they are often hundreds of dollars less per month or per year.
  2. The issue concerns our health. If generic medications are not the same, or if the quality is less reliable, we want to know. This is not about a piece of art that we want to hang on a wall, it is about a drug we are going to put in our bodies.
  3. False and misleading information has sometimes circulated about the quality of generic medications and the process by which they are approved. I have heard some remarkable explanations for why generics cost less; everything from claims that they contain "half" the dose of the "real" medicine to stories that generics are medicines that were gathered from the deceased or are typically expired.

What I hope to do is provide you with the real reasons why generic prescription medications cost so much less. These reasons should help you make an informed decision about whether a generic medication might be right for you.

There are essentially 3 reasons for the low cost of generic prescription medications:

GENERIC PRICES: LOW COST REASON #1

1) The FIRST reason that generics cost less is that the manufacturer spent less to produce it.

By "produce" I mean the total cost involved in bringing the medication to market. The brand name (original manufacturer's product) had to be studied extensively for both SAFETY and EFFECTIVENESS. Such studies are very costly, and often do not produce favorable results. These drugs never make it to market. Consequently, part of the cost of successful medications necessarily includes the costs of products that fail.

When a manufacturer discovers a new drug or entity they wish to study, they are typically granted a 20 year patent. This patent will allow them the exclusive right to market this drug...IF it proves to be safe and effective AFTER the various trials. Most drugs do NOT make it through this process. For those that do, there may be only several years left on the patent during which time a manufacturer must charge enough to cover all of their expenses, and make a profit.

Once the patent expires, ANY generic manufacturer may then produce the medication. The generic manufacturer ONLY has to prove that their product has the SAME ingredients and the SAME properties (i.e. same absorption, same dissolving properties, same blood levels produced by the brand, etc.). The generic manufacturer does NOT have to prove the drug is safe and effective...because that has already been done.

GENERIC PRICES: LOW COST REASON #2

2) SECONDLY, generic medications cost less because of "COMPETITION."

While the brand name product was exclusively available they were the only source for the product. When the patent expires, any and all generic manufacturers may produce it. Why would a pharmacy buy a generic from 1 manufacturer rather than another? Price. So generic manufacturers will price their drug as low as they can to gain that coveted spot on my pharmacy shelf.

Because there are dozens of generic manufacturers competing for the sales of the same generic drug, price wars tend to benefit the consumer and the market drives down the cost. Additionally, pharmacies or distributors may contract with 1 specific generic manufacturer to exclusively carry their generic line of products...in exchange for even lower prices on these generic prescription drugs.

GENERIC PRICES: LOW COST REASON #3

3) The THIRD and final reason why generic medications cost less is due to the INSURANCE INDUSTRY. What? The insurance industry? Yes. Health care insurance plans determine how much they are willing to pay a pharmacy for generic medications. This is called their "reimbursement rate." It is always calculated to be the lowest price they can convince a pharmacy to accept. Consequently, the low reimbursements that they demand force pharmacies to be very diligent in shopping for the lowest price generic drug they can obtain.

While ultimately trying to save themselves money, insurance companies also save you and I money by competitively driving down the price on prescription drugs, but especially on generic drugs which cost much less.

FINAL QUESTIONS AND ANSWERS

I hope this brief article has helped you understand why generics cost less. Here are a few final questions and answers that often come up with respect to generic prescription medication:

1) Are generics EXACTLY the same as the brand name? Generic drugs must meet the same FDA standards as the brand name product. They must contain the same active ingredient and deliver the medication in the same way.

2) Don't generic drugs use different fillers? A generic manufacturer may use different fillers, colors or other inert ingredients when making the generic product. These do not alter the quality of the medication.

3) Why does my generic prescription pill look different? Pill shape, color and size may be different with the generic product. These characteristics will not effect the way the medication works.

4) The brand name pill was bigger. Does that mean it had more medicine? No. The actual amount of "active" medication inside a pill or capsule is usually just a very small fraction of the pill contents. The rest is made up of various fillers and dispersing agents to help the medicine dissolve appropriately.

5) Why wasn't my generic very much less than the brand name? Sometimes, especially when a generic is first marketed, the price will not come down much. Over time, usually several months, as more generics become available, the cost will go down further.

6) Why didn't the generic drug work as well as the brand name? There may be times when an individual does not feel they get the same benefit with the generic drug. I typically recommend people try a 'different' generic in those cases. It is hard to explain scientifically why a generic would not work, while the brand name does.

7) Aren't some drugs too risky to substitute with a generic?Some drugs have a Narrow Therapeutic Index (NTI) and require very precise blood levels for safe and effective treatment. These include drugs like digoxin, warfarin and some seizure medications. However, if a generic has been approved, it is considered to be identical to the brand and may be substituted.

8) Can't I always get the brand name if I want it? Some states require the doctor to write "no substitution" on the prescription for you to obtain the brand name product when a generic is available. Also, your insurance may require the generic substitution when one is available.

Feel free to ask me any additional questions you may have!

Comments

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    • profile image

      Hashimks 

      3 years ago

      Nobody ever talks about the roll of inflation in cerating inequality in society. Not only is this tread bad for capitalism. But it can create a state of dependency. Whenever wages fail to keep pace with prices consumers can do one of four things. Borrow more in order to compensate for the declining value of their wages adjusted for inflation. Cut back on spending. Work more hours by getting another job. Or depend more and more on friends family private charities or government for their basic needs. Non of the options are particularly attractive. May I add one other thing to the commentary. Contrary to popular belief. The so called notion make people dependant on government and you will change their behavior for the worse. How about the reverse. Increase the wages of your employees by less than the increase in prices and you are almost guaranteed to make them more and more and more dependant on friends family private charities and the government for their basic needs over time.

    • profile image

      Harsh 

      4 years ago

      Rosie, I just wanted to tell you how proud I am that you are rciehang out for your dream, utilizing your God-given talents for the good. I am motivated now to stretch out my rod, just like Moses, regardless to how I have to struggle. I will continue to believe God for His direction, and favor. May the true blessings of God's abundance resonate throughout everything you do, and flourish!

    • pharmacist profile imageAUTHOR

      Jason Poquette 

      7 years ago from Whitinsville, MA

      Sally's Trove,

      Thank you so much for the kind words and the rating! Best wishes to you and your business!

    • Sally's Trove profile image

      Sherri 

      7 years ago from Southeastern Pennsylvania

      Yours is a much-needed, very informative response to myths and misinformation about generics.

      Rated up and useful.

    • pharmacist profile imageAUTHOR

      Jason Poquette 

      7 years ago from Whitinsville, MA

      Yes sir, I believe that is correct.

    • L.L. Woodard profile image

      L.L. Woodard 

      7 years ago from Oklahoma City

      Then the high price of a new drug is to offset the money spent on its development and study...and perhaps study on other drugs that never made it to market?

    • pharmacist profile imageAUTHOR

      Jason Poquette 

      7 years ago from Whitinsville, MA

      L.L Woodard,

      The patent for "exclusivity" begins when the manufacturer first petitions the FDA to study the drug, and is typically about 20 years. Thus, depending on how long the study process takes, they may only have 5-10 years left (or less) on the patent by the time the drug actually makes it to market (that is, if it ever actually makes it to market).

      Thank you for the kind words.

      Sincerely,

      Jason

    • L.L. Woodard profile image

      L.L. Woodard 

      7 years ago from Oklahoma City

      You've done a super job of explaining the price differences in generic drugs while also explaining that they are the same medication as their brand name counterparts. When a drug manufacturer first puts a drug on the market, how long a period of time do they have exclusivity to that drug?

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