Link Between Rising Generic Drug Prices and Market Competition Levels

There is an association between the rising generic drug prices and the changing levels of market competition, according to a study published in Annals of Internal Medicine.

Many patients utilize and rely on generic drugs for their medication needs, but rising prices make it more difficult to afford and maintain care. This retrospective study explored the causes for the continuous increase in generic drug prices by determining the influence of the market competition levels.

Data was collected from MarketScan Commercial Claims and Encounters, an employer and health plan drug database, from January 2008 to June 2013, as well as Red Book, a drug information database. The collected research from 5-and-a-half years was separated into 11 periods of 6 months. For each period, average drug prices were calculated to be compared to the baseline period (the first 6-month period). The market competition was then qualified using the Herfindahl-Hirschman Index (HHI), which quantifies market shares.

“The primary association of interest was between competition levels (HHI) and changes in drug prices,” wrote the authors. “Prices may increase faster for drugs with low baseline competition levels (time-stable component of HHI) or for those that become less competitive over time (time-varying component of HHI).”

Of the 1120 generic drugs included in the study period, there was an average price increase of 30%, while the weighted price (baseline market size was used at continuous variable) decreased by 14.2%. However, drugs in the group categorized as low-competition demonstrated a 63.8% increase in average price; there was a 43.8% increase for those in medium competition, and 9.7% increase among those in high competition.

The research found an association between lower or decreasing market competition levels and a rise in the generic drug prices.

“We found that increases in generic drug prices were strongly associated with market competition levels,” concluded the research. “Unless policies are enacted to stabilize generic drug markets in response to a decrease in competition, we may continue to see cases of generic drugs subject to large price increases.”