July 03, 2017
2 min read

Low market competition causes high generic drug prices

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New data showed a link between significant rises in generic drug prices and decreased market competition, according to a study published in Annals of Internal Medicine.

This trend will likely continue unless policies are adopted to stabilize generic drug prices, according to the researchers.

“In recent years, rising prices have been reported for several generic medications,” Chintan V. Dave, PharmD, from the University of Florida, and colleagues wrote. “One review found that the price of digoxin increased by 2800% in a single year... Many factors have been linked to these price increases, including shortages in the manufacturing supply chain (leading to reduced production) and a reduction in the number of manufacturers of a drug (resulting in insufficient competition).

“Although increases in generic drug prices are thought to be the result of insufficient competition, no study has examined the relationship between price increases and market competition levels,” they added.

Dave and colleagues evaluated the association between market competition levels and changes in generic drug prices using prescription claims data from the MarketScan Commercial Claims and Encounters database between January 2008 to June 2013. They divided data into 11 study periods each consisting of six months, with the first set of six months designated as the baseline period. The researchers estimated the average drug prices for the generic drugs and recorded the Herfindahl-Hirschman Index (HHI) for each period. They categorized price changes over time by level of competition at baseline (high: HHI value, < 5,000; medium: HHI value, 5,000 to < 8,000; and low: HHI value, 8,000) and adjusted for drug shortages, market size and dosage forms.

The researchers identified a cohort of 1,120 generic drugs from 1.08 billion prescription claims. Drugs with quadropoly — the highest level of competition — had a 31.7% drop in price (95% CI, –34.4 to –28.9), while drugs with monopoly — the lowest level of competition — had a 47.4% increase in price (95% CI, 25.4-73.2). Further, drugs with duopoly (HHI value of 5,000) and near-monopoly (HHI value of 8,000) were associated with price changes of –11.8% (95% CI, –18.6 to –4.4) and 20.1% (95% CI, 5.5-36.6), respectively. They also found that low market competition levels had a more prominent relationship with lower-priced generic drugs than their higher-priced counterparts.

Better understanding of the association between competition and price may aid in detecting which drugs are more vulnerable to price changes in the future, according to the researchers.

“Unless policies are enacted to stabilize generic drug markets in response to a decrease in competition, we may continue to see cases of generic drugs subject to large price increases,” Dave and colleagues concluded. – by Alaina Tedesco

Disclosure: The authors report no relevant financial disclosures.