The End of Generic Deflation

Most people involved in the purchasing and reimbursement of multisource prescription drugs are aware of the deflation of generic drug prices in the U.S.  Factors influencing the deflation include increasing number of generic suppliers and the FDA approving more ANDAs.  Furthermore, the wholesalers and pharmacies have combined their purchasing power and exerted additional pressure on the generic manufacturers to reduce prices.

Why is there constant market pressure leading to generic drug price deflation?  Pharmacies must combat ongoing reduced reimbursement rates from third party payers.  Since pharmacies do not have the negotiating leverage to manage reimbursement rates, they must focus on lowering their cost of goods.  Payers are under continual pressure to win new business and retain current clients by controlling the overall drug spend.  Payers have become more aggressive in lowering generic reimbursement through aggressive MAC pricing.

So, how does the self-reinforcing cycle of generic deflation end?  Which segment will stop this cycle?  At some point, generic manufacturers will determine that certain drugs are no longer profitable and will either stop lowering prices or stop selling the product.  When the number of suppliers is reduced, the inflationary cycle will start again and may lead to rapid price increases as the remaining suppliers take advantage of their new found pricing power.  How and when do you think the generic deflation cycle will end?

 

Published November 2017

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