Market Competition Levels May Influence Generic-Drug Costs

Increased market competition has an impact on generic-drug prices, according to the results of a recently published study examining the association between competition levels and changes in drug prices in the United States.¹ The findings could be useful for identifying older prescription drugs at risk of a price hike.

The US-based retrospective cohort study evaluated 1.08 billion prescription claims from commercial health plans between 2008 and 2013 and identified a cohort of 1120 generic drugs. The drugs were categorized as having high, medium, or low levels of market competition. The researchers estimated the average prices for the generic drugs in each 6-month period and found that nearly half the generic drugs in the study demonstrated competition levels in which just 2 manufacturers produced the drug.

Generic drugs with a high level of competition were associated with a greater price drop (31.7%) over the study period than those with low levels of competition, which was associated with a price increase of 47.4%.

Additionally, the researchers concluded that low market competition levels produced a greater correlation with drug prices in lower-priced drugs compared with higher-priced drugs.

Low market competition is thought to cause drug prices to rise for several reasons. Drug manufacturers may seek higher prices to offset the lower prices of their products in more competitive markets. Also, companies that make generic drugs may be given more leeway with raising prices for their products. The researchers indicated that lack of financial incentive, difficulty obtaining competitively priced materials, and the amount of time needed to gain approval often steers manufacturers away from entering low-competition markets.

One limitation of the study is that only drugs available as generics during the study period were included, meaning that the findings may not be as accurate for drugs that became generic after 2008.

The researchers noted that understanding the link between competition and price could potentially be helpful in identifying older prescription drugs that may be at risk of price changes. Policies intended to stabilize the generic-drug market in response to a decrease in market competition could prevent more cases of generic-drug costs rising.

The study was published in the Annals of Internal Medicine.