Competition improves healthcare

The United States Labour Department recently reported that the inflation rate for prescription drugs dropped to a 30-year low, says Robert Goldberg, vice president of the Center for Medicine in the Public Interest.

The drop is a result of two changes, says Goldberg. The first is the rise of generics:

Last year, 63 per cent of all prescription drugs dispensed in the United States were generics – a 13 per cent increase from 2005; that is due in part to patent expirations for several brand-name drugs.

In the past 18 months, for example, generic substitutes for the anti-cholesterol drug Zocor, the sleeping pill Ambien and the blood pressure drug Norvasc have arrived on the market.

For a sense of what that means, consider the Food and Drug Administration's recent finding:

Multiple generic market entrants can make a large impact on prices, halving the price when there are several entrants.

One generic in competition with a brand-name drug only reduces prices by 6 per cent.

But add a second generic and the price falls to 52 per cent of the original brand-name drug.

Even as generic drug competition has suppressed prices, the price war among drug retailers has compounded the savings for consumers:

Last year, Wal-Mart began offering hundreds of commonly used generics for a flat $4 fee.

Target and K-Mart followed; and Publix, a Southeastern grocery chain, seemingly outdid everyone by announcing that seven antibiotics would be free.

Most recently, Wal-Mart announced a new line of common drugs for $9; perhaps a sign that they intend to become a major outpatient health care destination.

The price suppression that results from the surge in generic usage and the "Wal-Mart effect" is the natural product of a functioning market. And better yet, neither of the catalysts of lower prices shows signs of abating, says Goldberg.

Source: Robert Goldberg, Competition improves health care, Seattle Post-Intelligencer, October 24, 2007.

For text: http://seattlepi.nwsource.com/opinion/336689_drugs25.html

For more on Health Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=16

FMF Policy Bulletin/ 30 October 2007