The Price to Consumers of Generic Pharmaceuticals: Beyond the Headlines

18 Pages Posted: 5 Aug 2019

See all articles by Richard G. Frank

Richard G. Frank

Harvard Medical School; National Bureau of Economic Research (NBER)

Andrew Hicks

University of Hull - School of Law

Ernst R. Berndt

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Date Written: July 2019

Abstract

Generic drug prices have been the focus of much attention in recent years, with Congressional committees, executive agencies and private organizations all conducting investigations into the pricing patterns for generic drugs. Price spikes for selected old, off-patent drugs have also been widely reported in the media. To place these generic price increases into context, we construct two chained Laspeyres consumer price indexes (CPIs), using the 2007-2016 IBM MarketScan Commercial Claims and Encounters Research Database. The first ("direct out-of-pocket CPI") measures consumers' direct out-of-pocket payments to the dispensing pharmacy, while the second ("total CPI") represents the total revenues received by the dispensing pharmacy – the consumers' direct out-of-pocket payments plus the amount paid to the pharmacy by the insurer on behalf of the consumer. We find the chained direct-out-of-pocket CPI for generic prescription drugs declines by about 50% between 2007 and 2016, while the total CPI falls by nearly 80% over the same time period. The smaller decline in the direct out-of-pocket CPI than in the total CPI is due in part to consumers' increasingly moving away from fixed copayment benefit plans to pure coinsurance or a mixed package of coinsurance and copayments. While consumers are experiencing more cost sharing that in fact shifts more of the drug cost burden on to them, on balance in the US consumers have experienced substantial price declines for generic drugs.

Suggested Citation

Frank, Richard G. and Hicks, Andrew and Berndt, Ernst R., The Price to Consumers of Generic Pharmaceuticals: Beyond the Headlines (July 2019). NBER Working Paper No. w26120. Available at SSRN: https://ssrn.com/abstract=3428172

Richard G. Frank (Contact Author)

Harvard Medical School ( email )

Department of Health Care Policy
Boston, MA 02115
United States
617-432-0178 (Phone)
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National Bureau of Economic Research (NBER)

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Andrew Hicks

University of Hull - School of Law ( email )

University of Hull
Hull, HU6 7RX
United Kingdom

HOME PAGE: http://www.hull.ac.uk/Faculties/staff-profiles/Andrew-Hicks.aspx

Ernst R. Berndt

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Room E52-452
Cambridge, MA 02142
United States
617-253-2665 (Phone)
617-258-6055 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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