As we introduced in Chapter 1, paying high prices for a branded drug (via insurance providers) is like paying a mortgage. In the case of a drug, patent-expiration is like that last mortgage payment, at which point society now “owns” the drug and will benefit from inexpensive versions of it for so long as it continues to be useful (many drugs remain useful for decades as inexpensive generics — keeping people healthy, productive, and out of hospitals). If another drug comes along that treats the same disease, but better, society might elect to “take out another mortgage” to pay for that one. But if the new drug isn’t better than the generics it competes against, chances are it won’t succeed commercially. Drug companies are always competing against their prior successes — and need to keep inventing better medicines to survive.
So when we talk about how America spends billions of dollars each year on branded drugs, remember: what we spend on branded drugs this year is paying for drugs that didn’t even exist 20 years ago. And in 20 years we’ll be paying for a whole new set of branded drugs because today’s brands will have gone generic.
And there are a TON of generics out there to compete against. Did you know that 90% of all prescriptions are for generics? According to the Association for Accessible Medicines, generic drugs have saved America nearly $3 trillion (that trillion with a T!) over the past decade, while accounting for only 1.5% of America’s total healthcare spending.
Now let’s hear a little more from Peter about how we’re going to pay for the next generation of drugs.
OPTIONAL: Further Reading
If you’d like to geek out even further on this topic, here is some [OPTIONAL] reading for you:
The modern system of genericizing drugs was encoded in the Hatch-Waxman Act of 1984.
A significant update was made in the Affordable Care Act to allow for biosimilars - drugs that would have otherwise been too complex to genericize via Hatch-Waxman.