Effect of Competition on Generic Drug Prices

Area of Science:

• Health Economics
• Pharmaceutical Policy
• Drug Pricing Analysis

Background:

• The US healthcare strategy emphasizes substituting lower-cost generic drugs for brand-name drugs after patent expiration.
• Generic drug market entry is a critical factor in managing prescription drug expenditures.

Purpose of the Study:

• To quantify the impact of generic drug competition on the prices of prescription drugs.
• To analyze how the number of generic competitors influences drug prices post-loss-of-exclusivity (LOE).

Main Methods:

• Utilized Medicare Part D drug event (PDE) data from 2007-2018.
• Employed fixed and random effects models at the drug level to assess competitor-price relationships.
• Tracked drug prices for 24 and 36 months post-first generic entry.

Main Results:

• Drug prices decrease as the number of competitors increases.
• Markets with approximately three competitors saw a 20% price reduction (80% price ratio).
• Markets with ten or more competitors experienced an 80% price drop (20-30% price ratio) within three years of generic entry.

Conclusions:

• Promoting generic drug entry is an effective strategy for controlling prescription drug costs.
• Fostering robust competition among generic drug providers is essential for price containment.