Why Even Generic Drugs Are Expensive

The truth of drug prices is a hard pill to swallow

By Trevor Kupfer | Last updated on May 17, 2022

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It’s no shocker that branded drugmakers occasionally take companies that make generic versions of their products to court. What may be more surprising is how those disputes are sometimes resolved.

“During the course of litigation, the brand and the generic companies discuss potential settlements, which impacts the interest of consumers and health insurers who are not part of the discussion,” says Michael M. Buchman, an antitrust and consumer protection attorney with Motley Rice. “For example, in one generic drug litigation involving a $1 billion-a-year antibiotic, the branded company paid the generics $400 million to stay out of the market and retain $600 million for itself.”

Buchman adds: “But the people that aren’t in the room are the consumers, wholesalers and health insurers who are denied a less expensive version of the drug.”

Drug Companies’ Higher Prices Hit American Payers

In a 2016 study, the Federal Trade Commission estimated that such practices amount to approximately $3.5 billion in overcharges each year. “We’re talking about enormous amounts of money changing hands and lots of opportunity for game-playing and collusion,” says Linda P. Nussbaum, an antitrust litigator with Nussbaum Law Group who was co-lead counsel on the first generic drug case, Lorazepam & Clorazepate Antitrust Litigation, in 2001.

Buchman and Nussbaum’s cases against the drugs companies are class actions. Generic drugs typically cost between 40 and 80 percent less than their brand-name drug counterparts, Buchman says, and they take away 90 percent of the market share within nine months because of substitution laws.

Those laws—and each state has them—say that, when a doctor issues prescription drugs, the pharmacist will fill it with a generic (if one exists) unless the doctor specifies otherwise. “We all recognize how important this is, and yet there is situation after situation where branded companies collude with generic companies to split the monopoly profits and delay generic entry, and the only people it benefits is those companies,” Nussbaum says. “Others are forced to pay the monopoly price.”

There is multi-district litigation involving over 100 drugs pending in Philadelphia in which it’s alleged that the collusion goes even deeper. “We’ve learned in the past couple of years that, once the generics come to market and competition occurs and prices get lower, the generic companies are now engaging in anti-competitive conduct,” Buchman says. “Consumers and health insurers are being deprived of the benefits of free and unrestrained competition, i.e. lower prices.”

When Drug Manufacturers Go to Court for Price Increases

Some of these cases go to trial, but few reach verdict. The vast majority are settled. Either way, if a company is forced to pay for wrongdoing, the attorneys try to notify the affected parties. “As part of the class-action settlement process, notice is published—in magazines and on the internet, for example—to notify people that, if they purchased the drug, they may have been overcharged,” Buchman says. “We make a claim form available for them to complete. It’s generally required that they send it in with their proof of purchase data in order to receive benefit under the settlement.”

Consumers can also play the role of whistleblower on the pharmaceutical industry and price of drugs. “If somebody has a position in health care and sees something out of the ordinary or has a suspicion, we’re certainly always happy to talk to them,” Nussbaum says. “You may become aware of something not seeming right—that the pricing has changed dramatically, that competitors have suddenly fallen out of the marketplace, that a company is offering all kinds of perks to a doctor if they agree to prescribe that drug, that a generic was supposed to come and never did.”

For more information on this area of law, see our overview of antitrust litigation.

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