How We Saved More Than $1.2 Trillion on Prescription Medications

Patent expirations have resulted in extensive health care savings over the past decade.

Patients with high-blood pressure or diabetes have plenty of choices for effective generic medicines to treat their conditions. But those highly affordable options would not exist if not for the branded versions that were developed by biopharmaceutical innovators in the 1990s and 2000s.

Between 2003 and 2012, patent expirations have resulted in more than $1.2 trillion in savings for the U.S. health care system, according to a study by the Generic Pharmaceutical Association.

“Some would call that a windfall to insurance companies, but you don’t see it referenced that way,” Murray Aitken, executive director of the IMS Institute for Health Care Informatics, said. “There is a lack of understanding to the extent that these patent expirations bring great savings to the entire health system, including patients.”

Innovative therapies spend a short time—about 11.5 years on average—as a branded treatments before living out their days as highly affordable generics. When a patent expires, the cost of the medications drops by 80 to 85 percent, on average, and remains at that price for the rest of the therapy’s existence.

 

Today 86 percent of prescriptions in the United States are for generics, and patients pay less than $10 for these treatments on average.

When media and policymakers zero in on high-priced medicines, it seems like these prices are the norm, but the reality is quite different. “About 2 percent of prescriptions billed last year carried a copay or coinsurance of more than $70, and so, 98 percent of patients paid less than that,” Aitken said. “But somehow that 2 percent gets all the attention.”

If all drugs were priced at the price of generics, there would be no investment capital available for the next generation of innovation

When assessing the value of new therapies, policymakers often take a short-term view. But the generic medicines of today are a testament to the branded therapies that preceded them. By extension, the branded therapies of today will be the generics of tomorrow.

“If all drugs were priced at the price of generics, there would be no investment capital available for the next generation of innovation,” Aitken said. “Medicine companies get returns on their investment so that they can reinvest in the cycle of innovation.”

Given the focus on prescription costs, it might seem like these therapies represent a large percentage of health care spending. In 2012, however, prescription medicines represented only 9 percent of U.S. health care spending. Meanwhile hospital care represented 32 percent, and physician services made up 20 percent.

“Prescription medicine spending is on par with nursing homes, which is about 12 percent, but people are not talking about how much nursing homes cost as much as they are talking about drug pricing,” Tomas Philipson, professor of public policy at the University of Chicago, said.

Percent of U.S. Health Expenditures for Prescription Drugs

The percentage of the health care budget spent on prescription medicines is about the same today as it was in 1960. The mix of novel branded therapies and generics have kept pharmaceutical spending balanced over the decades. The cycle of innovation is the patent system working efficiently to ensure improvements in patient lives.