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Protect Generic Drug Savings for Maryland Patients and Taxpayers

Governor Hogan Should Veto Legislation To Keep Generic Drugs Affordable for Maryland

WASHINGTON, DC (April 10, 2017) Generic drugs have been and continue to be an amazing success story in our healthcare system.

According to the annual Generic Drug Saving and Access Report compiled by QuintilesIMS, in 2015 generic drugs delivered $227 billion in savings to the U.S. healthcare system, and $1.6 trillion in savings over the last decade.  For that same calendar year, generic drugs comprised 89% of all prescriptions written in the United States, but accounted for only 27% of total prescription drug costs.

This means the remaining 11% of all prescriptions in the U.S. market — branded pharmaceuticals — accounted for 73% of total costs.  It is an incredible feat when any industry can meet almost 90% of all market demand, while doing so for less than one-third of all total costs.

Unlike almost every other sector in healthcare, including hospitals, insurance, branded pharmaceuticals, etc., year over year the generic drug sector actually experiences price deflation, not inflation.  This was reflected in a five-plus year study released last Fall by the Government Accountability Office.  The primary reason for overall prices going down in the generic sector is due to the level of fierce competition in the generic marketplace, where multiple manufacturers are forced to aggressively compete on price.

Despite this unparalleled level of success, the Maryland General Assembly today passed a bill, at the behest of the State Attorney General, to give the Attorney General the authority to take legal action against generic pharmaceutical companies that engage in “price gouging,” defined as a company instituting a price increase believed to be “unconscionable,” a vague and imprecise term that provides no meaningful standard by which companies may discern whether their prices set in the free market comply with the law.

The term is defined even further, yet just as vaguely, as “excessive.” To make their case, the Attorney General and other supporters often cite to several high-profile cases over the last few years – such as the AIDS drug Daraprim – that have provoked a level of public outrage and political momentum to take action.

Too bad Daraprim is not a generic drug.

While the desire to take action against bad actors in the industry is understandable, what has been utterly lost in the debate over prescription drug costs in Maryland this session is the law of unintended consequences; namely, that by giving the Attorney General this unbounded and unprecedented level of authority to control pricing in a competitive free market, generic companies will be exposed to a level of risk in Maryland that will require them to evaluate whether they want to continue to market affordable medicines within the state.

And if the new level of risk presented by the legislation compels several manufacturers, all competing in the same therapeutic market, each on its own, to decide that the risk is too high, they will look to stop manufacturing or marketing certain medicines.  If that happens, it will mean less competition, not more, and that will translate into fewer options and ultimately higher health care costs, none of which is a good for Maryland patients and taxpayers.

Recently before a U.S. House of Representatives Oversight and Government Reform Committee, 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. As part of his testimony Professor Anderson stated:

"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."

By providing the Attorney General with this new level of unchecked and unprecedented authority, where he or any of his successors could choose to sue a manufacturer for raising the price of a generic statin from ten cents to twelve cents, the Maryland General Assembly has increased the likelihood of the marketplace described by Professor Anderson that “doesn’t work.”  While lawmakers had the opportunity to narrow the focus of the bill, which would have still given the Attorney General the authority to go after bad actors such as the manufacturer of Daraprim and other branded pharmaceuticals, they chose not to do so.

Generic drugs have been and continue to be an amazing success story in our healthcare system. Unlike almost every other sector in healthcare, including hospitals, insurance, and branded pharmaceuticals, year over year the generic drug sector actually experiences price deflation, not inflation.

Express Scripts Prescription Price Index
Year over year, generic drug prices fall, while brand name drug prices rise. The overall price of generics fell over 8% in 2016, and prices are down over 70% since 2008.

In 2015, generic drugs saved the state of Maryland $3.7 billion, which equates to more than 28% of what Governor Hogan’s Administration proposed to spend on all healthcare expenditures in the state for FY 2017.  While the bill passed by the Maryland General Assembly today may make for a good politics, it not only puts that level of health care savings at risk moving forward, but would actually backfire by raising, not cutting, prescription drug costs. This will harm both Maryland patients and taxpayers alike and thus should be vetoed by Governor Hogan

While the desire to take action against bad actors is understandable, what has been utterly lost in the debate over prescription drug costs in Maryland this session is the law of unintended consequences: Namely, by giving the Attorney General unbounded and unprecedented authority to control pricing in a competitive free market, generic companies will be exposed to a level of risk in Maryland that will require them to evaluate whether they want to continue to market affordable medicines within the state.

In order to preserve the savings that generic drugs provide to Marylanders, Governor Hogan should veto this bill.

A number of Maryland lawmakers are already touting Maryland’s leadership in being the first state in the US to pass this type of legislation.  One day, in the not too distant future, they should be prepared to defend why Maryland was the first state to lead the nation in creating less market-based competition, higher overall prescription drug costs, while also simultaneously increasing the risk of future drug shortages for Maryland’s patients.

Chester “Chip” Davis, Jr. is the president and CEO of the Association for Accessible Medicines.

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About AAM

AAM is driven by the belief that access to safe, quality, effective medicine has a tremendous impact on a person’s life and the world around them. Generic and biosimilar medicines improve people’s lives, improving society and the economy in turn. AAM represents the manufacturers and distributors of finished generic pharmaceuticals and biosimilars, manufacturers and distributors of bulk pharmaceutical chemicals, and suppliers of other goods and services to the generic industry. Generic pharmaceuticals are 89 percent of prescriptions dispensed in the U.S. but only 27 percent of total drug spending. Additional information is available at www.accessiblemeds.org.