Market Competition Drives Down Drug Prices

BLOOMBERG -- American consumers and health insurers saved about $1 billion on generic drugs this year as “fierce” competition among drugmakers and pressure from insurers lowered prices. The surge in use was driven by a flood of new generic drugs that entered the market this year after patents expired on $16 billion worth of medicines. At the same time, insurers and retail pharmacies are pressuring generics makers to cut prices as they compete against each other. The trends are likely to accelerate through 2012 as half the current 20 top-selling pills get competition from generic copies, which can cost 70% less than their brand-name counterparts.

USA Today -- Spending on prescription drugs in 2007 showed the smallest increase in more than four decades, driven by rising use of low-cost generic drugs, and chain stores offering $4 prescriptions.

NY Times -- National health spending grew in 2007 at the lowest rate in nine years, mainly because prescription drug spending increased at the slowest pace since 1963, the government reported Monday. Prescription drug prices rose 1.4% in 2007, much less than the 3.5% growth recorded in 2006 (and also much less than the overall rates of inflation in both 2007 and 2008, see chart above). The slower growth results, in part, from generic drug discount programs offered by large retail chains like Walmart.

MP: Maybe if the rest of the health care industry was exposed to as much intense market competition as the prescription drug market, we'd also see price declines for physician services, etc.?

See a good timeline here at FMPolitics of the trend toward lower drug prices that began in 2006 when Wal-Mart started offering $4 prescriptions.