Jokes about doctors delivering good news and bad news are common. I have good news and bad news to deliver, but it is no joke. The good news is that your prescription medicine costs can be contained by greater generic drug competition. The bad news is that our attorney general is doing all he can to kill that competition.
There is a bill backed by Attorney General Brian Frosh, House Bill 631, moving through the Maryland General Assembly propelled by an unhealthy mixture of bad economics and political theater. It threatens the one sector of our health care economy that is saving all of us money — generic medicines.
HB 631 introduces burdensome reporting requirements for generic manufacturers, establishes counterintuitive price thresholds for these medicines and takes other steps that, in an unsuccessful effort to curb the behaviors of a small number of companies, damage the market for the large majority of generics that continue to deliver on their promise to create savings and enhance patient access.
The FDA reports that generics are typically 80 percent to 85 percent less expensive than their brand drug equivalent. Those savings mean a lot to Marylanders. Generic medicines saved Maryland's patients and taxpayers $3.7 billion, according to the most recent annual generic drug industry savings data. That includes an almost $700 million yearly savings for Maryland state Medicaid.
HB 631 jeopardizes these savings and would actually make it harder for lower cost generics to reach patients. As we continue to deliberate this bill, the burden will be on the attorney general to demonstrate that his legislation — which provides him with unprecedented powers to arbitrarily investigate and penalize companies — does no harm to the industry, will not end up raising prices and won't result in prescription drug shortages.
Generics make up 90 percent of the prescriptions in the United States but only 27 percent of total drug spending. What's even more remarkable is that generic drugs overall experience price deflation, meaning a majority of products finish the year significantly less expensive than where they started. Generic price declines overall are a steady trend well-documented by the FDA and other respected sources in numerous studies. In fact, the new Express Scripts Drug Trend Report notes that generics on average declined 74 percent since 2008.
The supporters of this bill may be well-intentioned, but this effort is doomed to have the reverse effect because of a basic flaw: It does not recognize that generic drug companies operate entirely differently from brand drug companies. Generic products typically have very low profit margins, which means as regulatory burdens rise, like those the attorney general is advocating, many products may very well cease to be profitable, potentially stopping some manufacturers from supplying their products to Maryland.
Before the U.S. House of Representatives Oversight and Government Reform Committee last week, Gerard F. Anderson, a professor of health policy and management and professor of international health at Johns Hopkins University Bloomberg School Public Health, testified on the need to remove barriers to generic competition. His testimony wasn't about HB 631, but it serves as a warning about that bill's potential for harm to Maryland: "The generic industry works incredibly well when there are three, four competitors in the market. It works less well when there are two, and it doesn't work at all when there's none," he said.
The generic drug market is working. Encouraging more generic drug competition will do for Maryland what it has done for the past three decades — lower costs and increase patient access to more affordable medicines. If policies like those in the attorney general's bill penalize manufacturers indiscriminately, they pose a very real risk of reducing the number of companies providing medicines to Maryland consumers and ultimately causing prescription drug prices to increase.
State Sen. Steve Hershey, a Republican, represents the Upper Eastern Shore and is a member of the Senate Finance Committee. His email is email@example.com.