October 05, 2007

Americans have access to the most innovative drugs in the world - and the cheapest generic drugs in the world. This is because generic drug manufacturers don't have to duplicate the clinical trials the FDA requires of new drugs, and the lack of price controls for prescription drugs (which set both a floor and a ceiling for drug prices) encourages fierce price competition between generic drug producers. Also, patent expiration forces companies to bring innovative new products to market.

As health care costs rise across the board, payers are increasingly turning to generic drugs to help contain costs, and the FDA is helping by expediting the review of generic drug applications:

The U.S. Food and Drug Administration on Thursday said it approved one-third more generic drugs last fiscal year and said it planned to speed review of these cheaper versions of brand-name drugs.

"We had no anticipation that the number of generic applications would skyrocket as it did" in the past several years, he added.

This is all to the good. Consumers should have access to a wide range of both generic and branded drugs, at a wide range of prices.

Policymakers, take note: The prescription drug industry is one of the few health care sectors where prices, and often quality, are relatively transparent and where consumers are encouraged to compare both the price and quality of the products they routinely use. (Especially with the advent of Wal-Mart's $4 generic program.)

More, of course, could be done, but the rise in generic utilization shows that it is possible to balance incentives for innovation and cost savings, particularly when consumers have an incentive to compare products effectively.

Posted by Paul Howard at October 5, 2007 12:10 PM

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