On September 12, 2016, the Government Accountability Office (GAO) released a report about generic drug prices in the Medicare Part D program. The report provides an overview of changes in Part D generic drug prices over time, the extent to which Part D generic drugs experienced “extraordinary” price increases, the effect of the increase on benefit design, and factors that were identified by stakeholders as contributing to drug prices.
This report has been issued in response to a request made to GAO that they examine price trends for generic drugs, and the factors that affect prices. In addition to analyzing pricing data, GAO created price indexes to show price trends; determined the number of drugs that had an extraordinary price increase of 100% or more; and interviewed drug manufacturers, Medicare Part D plan sponsors, pharmacy benefit managers, relevant trade associations, and economics experts, to identify factors that contribute to generic drug price changes.
Overall Generic Price Trends
The GAO looked at data from Part D claims from Q1 2010 through Q2 2015. GAO found that “generic drug prices fell 59 percent from the first quarter of 2010 through the second quarter of 2015,” reflecting a “changing basket” of 2,378 drugs during that time period. According to the report, prices under Medicare Part D fell rapidly from Q1 2010 through Q4 2012 and then declined moderately thereafter through Q2 of 2015 for the changing basket of drugs.
GAO additionally looked at an “established basket” of 1,441 drugs that “were present during the entire period of analysis.” The established basket, “decreased moderately and then increased slightly.” Overall, drugs in the established basket declined by 14% from the first quarter of 2010 through the second quarter of 2015, but trends varied over time: the prices decreased by 22% from Q1 2010 through Q4 2012, from that point until Q2 2015, the price increased by 10%.
It is likely that the steeper price decrease experienced by the changing basket was due to rapid price declines among new generic drugs, which are found in the changing basket but not the established one. GAO found that prices declined much more rapidly for generics newly billed under Medicare Part D relative to established generic drugs.
Price Increases
In reference to the “extraordinary” price increases, the GAO found that more than 300 of the established generic drugs had at least one extraordinary price increase during the time period (defined as a price increase of 100% or more). The report notes that certain categories of generics were more prone to extraordinary price increases than others and that the extraordinary price increases did not impact benefit design too much because of continued relative lower cost compared to their branded counterparts. Additionally, it was noted that some of the more expensive generic drugs are placed on non-preferred generic tiers, which are still cheaper for the beneficiary than the tiers that have branded products.
Factors Contributing to Drug Prices
According to the report, the factor that most impacted generic drug prices was competition – “price and availability” of the same drug from other manufacturers was the “primary driver” of generic price increases. The GAO also noted that generic competition is impacted by factors, including “raw material shortages, production difficulties, consolidation among manufacturers, and a backlog of new generic drug applications awaiting federal review.”
The appendices at the end of the report provide detailed information on the specific generics that underwent extraordinary price increases and information on the categories of generics that experienced a price increase.