$734 Billion in Generic Health Care Savings

Author: Kathleen Jaeger, GPHA President and Chief Executive Officer

Health care reform is dominating the news lately. As the Obama administration and Congress continue to define legislation to reduce America’s health care tab, it is clear from a recent IMS Health analysis published by the Generic Pharmaceutical Association (GPhA) that generics are providing an astonishing contribution to making the cost of prescription medicines more affordable every day.

On May 7, GPhA released the results of an independent analysis commissioned from IMS Health. This analysis revealed that using generic pharmaceuticals saved the American health care system more than $734 billion in the last decade (1999-2008), with approximately $121 billion in savings in 2008 alone.

Given that 69% of prescriptions filled in 2008 were dispensed with a generic, this means that every 3 days, generics produce approximately $1 billion in savings. When looking at this analysis, it is clear that generic medicines have made an extraordinary contribution over the past decade in reducing prescription drug costs, fostering competition while also sparking innovation in the brand industry, and increasing access to quality care.

A Closer Look at the Numbers
From 1999 to 2004, generic savings increased steadily at an annual rate of between 3% and 10%, with savings growing from $49 billion in 1999 to $69 billion in 2004. Beginning in 2005 and continuing through 2008, the savings generated by generics grew at a double- digit annual pace, with the highest growth rate coming in 2008 when the savings topped $121 billion.

Treatments in the therapeutic categories for metabolism, cardiovascular, anti-infectives, and central nervous system (CNS) have experienced the highest growth in savings as a result of generic utilization. More than 57% of the total savings between 1999 and 2008, totaling some $420 billion, came from the cardiovascular and CNS categories. Generic metabolism and antiinfective drugs combined to account for an additional 19% of the savings. In total, these 4 therapeutic categories resulted in overall savings of $561 billion, or 76% of total savings.

Growth in the substitution of generic medicines is driven by the continuous stream of more affordable generic products launched each year by members of our industry. In fact, over the period 2004-2008, brand name products with combined annual sales of approximately $71 billion lost market exclusivity and became open to generic competition. Some of the major products that saw generic competition during this period included Allegra (fexofenadine), Ambien (zolpidem), Pravachol (pravastatin), Zoloft (sertraline), and Zocor (simvastatin).

Brand product patent expirations will continue to drive growth in the generic sector over the next several years. Industry analysts estimate that brand products with approximately $90 billion in annual sales will lose market protection between 2009 and 2012, including such mega-sellers as Lipitor (atorvastatin), Plavix (clopidogrel), and Viagra (sildenafil).

Increased Health Care Savings
As Congress and the Obama administration work to reform America’s health care system, reducing health care costs while ensuring the delivery of quality care is goal number 1. Based on the current generic utilization rate and the average costs of brand and generic prescriptions, a 3% increase in generic use nationally would generate approximately $9.5 billion in added savings annually.

GPhA believes that 3 significant opportunities exist to provide additional savings while simultaneously expanding access to medicines. These include initiatives to:

• Increase investment in the FDA’s Office of Generic Drugs to ensure the timely review and approval of new generic pharmaceuticals.

• Establish a science-based biogeneric approval pathway that promotes innovation while providing access to more affordable versions of lifesaving biologic medicines.

• Encourage greater use of FDAapproved generic medicines in publicly funded drug plans.

Celebrating 25 Years of Access to Affordable Medicines
Twenty-five years ago, Sen Orrin Hatch (R, UT) and Rep Henry Waxman (D, CA) led an effort to pass the 1984 Hatch-Waxman Act. Although some critics predicted the Hatch-Waxman Act would harm innovation, just the opposite has happened. Not only did the legislation launch what is now a robust and vibrant generic pharmaceutical industry, it helped unleash remarkable innovation of new and better medicines. Today, the generic industry contributes significant savings to federal and state governments, payers, and employers and makes a real difference in the availability and cost of health care for Americans.