Research on Savings from Generic Drug Use

The Hatch-Waxman Act, passed in 1984, is largely responsible for the relationship seen today between generic and brand name drugs.  While brand names are allowed to charge high prices for their first several years on the market, their patents eventually expire (as stipulated by the Act) and generic manufacturers move in to sell at a lower price, says the Government Accountability Office.

Prescription drug spending in the United States reached $307 billion in 2010 -- an increase of $135 billion since 2001.

This comprised approximately 12 percent of all health care spending in the country in 2010.

As efforts to control health care spending expand, attention is naturally paid to the role of generic drugs in reducing spending on prescriptions -- generics are, on average, 75 percent cheaper than their brand-name competitors.

The usage of generic drugs has grown from approximately 19 percent in 1984 to 78 percent today, and is expected to increase even further in the next few years as major drugs lose their patent.

The Government Accountability Office has conducted a review of studies on the topic in an effort to understand the future role that generic drugs might play in controlling costs.  Its research yielded several conclusions.

A series of studies estimated the total savings that have accrued to the U.S. health care system from substituting generic drugs for their brand-name counterparts to be more than $1 trillion between 1999 and 2010,

One study assessed the potential for additional savings within Medicare Part D, finding that if generic drugs had always been substituted for the brand-name drugs studied, about $900 million would have been saved in 2007.

Source: "Research on Savings from Generic Drug Use," Government Accountability Office, January 31, 2012.

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