We’ve all heard the grumblings about high prescription drug costs in the U.S. In some sense, these complaints are valid: The United States does pay more, on average, for brand-name drugs. The U.S. also tends to use much newer, more expensive drugs than its fellow OCED countries. But an astounding new development in the world of pharmaceuticals could get the old folks to shut their wallets (as well as their bickering mouths). Retail stores, like Wegmans and Rogers, are now offering atorvastatin, the generic version of cholesterol-lowering Lipitor, for free. How is this possible?
Expensive brand-name prescription drugs costs in the U.S. are not driven by high manufacturing costs, but rather by high initial costs for research and development. In order to come out on top after expensive and lengthy clinical trials, pharmaceutical companies must charge prices for their new commodities that are much higher than the per unit cost of production. The trick for generic companies is that they do not have to front research and development costs to demonstrate safety and efficacy. A simple determination of “substantial equivalence,” whereby the FDA deems the drug to have similar composition to the brand name drug, is sufficient.
Retailers across the country are trying to take advantage of this catch. The idea is to entice customers into their stores with free generics – then, if everything goes according to plan, those customers will end up spending more in other areas of the store than it costs the retailer to manufacture the cheap drugs. In the retail world, programs such as these are called “loss leaders.”
What does this mean for the health of American citizens? Some organizations, such as the Centers for Disease Control, have expressed concern that such programs will lead to overuse of the drugs. These concerns are probably valid: when was the last time you turned down anything for free? Others, however, tote the initiative as a gleaming example of how private markets can produce better health care.
I side with the proponents of such programs, although I would warn that a more insidious externality might linger in the future if these programs really spread Enacting programs such as these will further pressure an already stringent time-frame on drug companies to recoup their initial research and development costs. Brand-name drugs will be doomed once their patents expire in the face of free generic giveaways; this development could potentially drive up brand-name prices. Consider a second, perhaps more disconcerting effect as well — reduced incentives for the pharmaceutical industry to develop new drugs at all.
Until then, I’m heading to Wegman’s. I’ve got a prescription to fill.