Replacing big pharma's products: how good are the generic options?

Posted July 17

One of the easiest ways to reduce drug prices is by replacing more brand-name drugs with generic drugs, or generic substitution (GS) (Deseret Photo)

Big pharma and its big price tags have been the target for many a politician seeking to lower the cost of health care in the U.S. Martin Shkreli and his questionable big-pharma persona are an easy target and embodiment of how some continue to squeeze increasing profits out of America’s declining health. Drug prices have been identified by both sides of the aisle as a possible solution to stave off people's possible bankruptcies due to health care costs.

One of the easiest ways to reduce drug prices is by replacing more brand-name drugs with generic drugs, or generic substitution (GS). You’ve seen them sitting side by side when you visit your neighborhood pharmacy or maybe even had a doctor mention something to you on a routine visit: acetaminophen replacing Tylenol, cetirizine hydrochloride replacing Zyrtec, even atorvastatin replacing Lipitor.

The complicated names you see next to the common, usually more well-known, brand names are the generic form of drugs. Generic drugs are medications that have undergone FDA testing to prove that they are made of the same active ingredients. These typically come to market once a medication’s patent has run out and other companies are allowed to formulate the same active ingredients. Much of the debate about generic equivalence involves the proprietary formulations of inactive ingredients by the various companies and whether generics provide the same net benefit, or bioequivalence, to the patient.

A recent study in Applied Health Economics and Health Policy found that 76 percent of new generic prescriptions and 64 percent of continuing generic prescriptions were judged to have the same clinical effects as their more expensive counterparts. Most of those with differing effects were drugs that had a narrow therapeutic window, or concentrations over which the drug is effective and not toxic.

While this clinical effect is applicable across 10 major categories of medications, the economic effect of generic substitution is much more muddied. Of the 22 studies investigating the economic impact of GS, 14 found generic drugs to be overall more expensive, when including visits for dosing changes, hospitalizations due to adverse effects and other medications that may be prescribed along with generics. In addition, of those studies that found differences in effectiveness between generic and name-brand, 83 percent of those sponsored by name-brand drugs found their products to be better and 86 percent of those linked to generic drugs found the generic to be better.

Some of this net effect can probably be attributed to the placebo effect. A recent study out of the University of Cincinnati found that a placebo was 30 percent more effective at dealing with symptoms of Parkinson’s when patients were told it was more expensive. This placebo effect, while narrowly studied in Parkinson’s treatment, points to the increasingly important role of health care professionals in educating patients on the nature of generics and removing stigmas associated with administration of these medications.

Generic drugs are one step to help solve the nation’s bloated health care spending. Generic drugs are largely just as effective as their name-brand counterparts and commonly have similar clinical effects. In those drugs that have narrow therapeutic windows, such as anti-epileptics, it is important that patients pick name-brand or generic and stick with their choices. Of course, further study is important in determining the overall cost of generic substitution. At the same time, it is increasingly important for physicians and other health care professionals to educate their patients by referring to medications by their drug name and not always the brand name.

John Hoffmire is director of the Impact Bond Fund at Saïd Business School at Oxford University and directs the Center on Business and Poverty at the Wisconsin School of Business at UW-Madison. He runs Progress Through Business, a nonprofit group promoting economic development. Craig Yugawa, Hoffmire’s colleague at Progress Through Business, did the research for this article.

John Hoffmire teaches at Sa√Źd Business School at the University of Oxford.


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