The escalating cost of prescription drugs in the United States represents a significant and persistent challenge within its healthcare system. These high prices place a considerable financial burden on individuals, strain the resources of healthcare systems, and affect the overall economic well-being of the nation. Generic competition stands out as a crucial mechanism for mitigating these costs, offering more affordable alternatives to brand-name medications. This report provides a comprehensive analysis of the intricate relationship between drug prices and generic competition in the US. Key findings reveal the multifaceted nature of high drug costs, the substantial impact of generic availability on price reduction, the various barriers that impede the entry of generic drugs into the market, and the influence of government policies and stakeholder perspectives on this dynamic. International comparisons further illuminate the unique challenges and potential solutions within the US pharmaceutical market. Ultimately, the report underscores the complex interplay of these factors and the necessity of implementing comprehensive strategies to foster generic competition and achieve more affordable prescription drug prices.
2. Introduction: The Challenge of High Prescription Drug Prices:
The United States faces an ongoing crisis of high prescription drug prices, a problem that has far-reaching consequences for its citizens and its healthcare infrastructure. The increasing cost of medications places an immense financial strain on individual patients, forcing difficult choices between essential healthcare needs and other necessities of life.1 This burden is particularly acute for those with chronic conditions, older adults, and individuals with limited incomes who require regular medication.3 The high cost of prescription drugs also impacts the broader healthcare system, contributing to rising insurance premiums, increased government healthcare spending, and potential limitations on access to care.4 Furthermore, the economic implications extend to reduced productivity and overall financial instability for many American families.6
Generic drugs, chemically identical or bioequivalent versions of brand-name medications whose patents have expired, offer a significant pathway to reducing these costs.7 By providing lower-priced alternatives, generics introduce competition into the pharmaceutical market, which can lead to substantial savings for both consumers and payers.8 Recognizing the critical role of generic drugs in addressing the affordability challenge, this report aims to provide a comprehensive analysis of the relationship between drug prices and generic competition within the United States. The scope of this analysis will encompass the current landscape of prescription drug prices, the mechanisms of generic drug approval and market entry, the impact of generic competition on pricing, the barriers that hinder this competition, the role of government policies and initiatives, the perspectives of key stakeholders, and a comparative look at drug pricing models in other developed countries. By exploring these interconnected elements, the report seeks to offer a deeper understanding of the dynamics at play and to inform potential strategies for fostering a more competitive and affordable pharmaceutical market in the US.
3. The Current State of Prescription Drug Prices in the US:
Average Cost of Prescription Drugs:The average annual expenditure on prescription drugs per person in the US is approximately $1,500.10 This figure highlights the significant financial outlay by individuals for necessary medications. While this represents an average, the actual cost experienced by individuals can vary widely depending on their health conditions, the types of medications they require, and their insurance coverage. In 2024, the median price increase for branded drugs was 4.5%, and this trend continued into January 2025 with a median increase of 4.0%.11 This indicates that while some drugs may experience price stability or even decreases, a significant portion of branded medications continue to see price hikes. However, the weighted average price change for all brand products in 2024 was 1.4%.12 This lower weighted average suggests that price decreases in heavily utilized brand-name drugs may be moderating the overall price growth in the market. Notably, the average list price for brand-name drugs grew by only 2.3% in 2024, a significant drop from the double-digit growth rates observed between 2010 and 2015.13 This deceleration was largely due to list price reductions implemented by major manufacturers for some widely prescribed products, including substantial cuts in the list prices of various insulin products.13 This suggests a potential shift in pricing strategies, possibly influenced by increased competition, policy pressures, and the complex dynamics of rebates and discounts in the pharmaceutical market. Despite these list price adjustments, net prices for brand-name drugs remained essentially unchanged in the first three quarters of 2024, with a historically small gross-to-net price gap of -2.2%.13 This indicates that while list prices may see some moderation, the actual prices paid after rebates and discounts remain relatively stable. For Medicare Part D beneficiaries, significant changes are underway to address out-of-pocket drug costs. In 2025, a $2,000 annual cap on out-of-pocket expenses will take effect.14 This cap is projected to save approximately 11 million Medicare Part D enrollees a combined $7.2 billion, or about $600 per enrollee.15 In 2024, a cap on annual out-of-pocket costs begins at a threshold of $8,000 in true out-of-pocket (TrOOP) costs, with most individuals contributing between $3,300 and $3,800 towards this limit.14 This phased approach aims to provide increasing financial relief to Medicare beneficiaries facing high prescription drug expenses. However, even with these caps, the initial out-of-pocket costs in 2024 can still be substantial for many individuals, highlighting the ongoing need for policies to further lower drug prices.
Primary Factors Contributing to High Costs:The persistently high cost of prescription drugs in the US is a complex issue driven by a confluence of interconnected factors. Monopoly power granted through patent protection and market exclusivity is a primary driver, allowing pharmaceutical companies to set high prices without significant competition for a defined period.17 This lack of price regulation in the US, unlike many other developed nations, further amplifies this effect.17 Even after patent expiration, some older drugs can maintain high prices due to limited market competition.17 The fact that treatments for serious diseases are often not considered luxury items but necessities for vulnerable patients also sustains high prices, as individuals and families are often willing to pay almost any amount to prolong life or improve its quality.17 The high cost of drug development, with estimates averaging around $3 billion per new drug when accounting for failure rates, is frequently cited as a reason for high prices.17 However, concerns exist that these estimates may be inflated, and the significant role of public funding in the foundational science behind many new drugs is often overlooked.17 The substantial lobbying power of pharmaceutical companies and their trade organizations, with expenditures reaching hundreds of billions of dollars annually, significantly influences policy and regulatory decisions, often hindering reforms aimed at lowering drug prices.17 The lack of a central negotiating authority in the US, where the federal government is largely prohibited from directly negotiating drug prices for most populations, contrasts sharply with the practices in Canada and many European countries, where government negotiation is common and contributes to lower prices.20 The US healthcare system’s prioritization of access to all FDA-approved drugs, even those with high costs and available alternatives, also contributes to higher overall spending compared to other nations that may restrict access based on value assessments.21 The perceived greater ability to pay within the US healthcare system, due to the prevalence of insurance coverage (albeit with high premiums and cost-sharing), may also contribute to the acceptance of higher prices.21 The regulatory environment, including the often lengthy and costly FDA approval processes and the granting of patent and market exclusivity periods, can also impact drug costs and delay the entry of lower-priced generics.21 Increasing utilization of prescription drugs due to factors like new indications for existing drugs, direct-to-consumer marketing, and the incentives within a fee-for-service system, along with a shift towards a drug mix that includes more costly specialty medications and newer versions of drugs, are also significant drivers of high prescription drug spending.3 The lack of price transparency throughout the pharmaceutical supply chain, where pricing details are often confidential and a complex rebate system exists, makes it challenging for consumers and payers to understand and control costs.19 Insurance benefit designs with significant patient cost-sharing provisions, such as high deductibles and copays, can also lead to affordability issues for patients.3 Furthermore, there is a lack of effective incentives for controlling product prices within the US market 9, coupled with an unequal bargaining power dynamic between individual buyers and large pharmaceutical corporations.9 Finally, substantial marketing and advertising expenditures by pharmaceutical companies are factored into drug prices 23, and even drug shortages, particularly of lower-cost generics, can lead to price increases for the available alternatives.4 This intricate web of factors underscores the complexity of the challenge in addressing high prescription drug costs in the United States.
4. Generic Drugs: Definition, Approval Process, and Bioequivalence:
Definition of Generic Drugs:Generic drugs are medications that are designed to be the same as an already marketed brand-name drug in dosage form, safety, strength, route of administration, quality, performance characteristics, and intended use.24 They contain the same active ingredient as the brand-name drug and must have the same strength, dosage form (such as a tablet or an injectable), and route of administration (like oral or topical).7 A crucial requirement for FDA approval of a generic drug is the demonstration of bioequivalence to the brand-name drug.7 This means that the generic drug must perform in the body in approximately the same way as the brand-name drug, delivering the same amount of active ingredient to the bloodstream at roughly the same rate and extent.27 This ensures that the generic medicine will have the same clinical benefit and safety profile as its brand-name counterpart.25 While generic and brand-name drugs share the same active ingredient, they may differ in inactive ingredients, which include components like fillers, binders, colors, flavorings, and preservatives.24 These differences are allowable as long as they do not affect the performance, safety, or effectiveness of the generic medicine.24 Trademark laws also require that generic drugs look different from the brand-name versions, so they may vary in size, shape, and color.8 A significant advantage of generic drugs is that they are typically sold at significantly lower prices compared to their brand-name counterparts.8 This cost reduction is primarily because generic manufacturers are not required to repeat the costly clinical trials of new drugs and generally do not pay for extensive advertising, marketing, and promotion.8 The competition among multiple generic companies applying to market a single product often further contributes to lower prices.25
Generic Drug Approval Process (ANDA):Generic drug manufacturers seeking to market their products in the US must submit an Abbreviated New Drug Application (ANDA) to the FDA for approval.31 This application process is termed “abbreviated” because it is generally not required to include extensive preclinical (animal) and clinical (human) data to establish the safety and effectiveness of the drug.29 Instead, a generic applicant must scientifically demonstrate that its product is bioequivalent to the reference listed drug (RLD), which is typically the brand-name drug.29 The FDA has specific key requirements for an ANDA to ensure that the generic drug is a suitable substitute for the brand-name drug.31 These requirements include demonstrating pharmaceutical equivalence, meaning the generic drug must be the same type of product (e.g., tablet, injectable) and utilize the same time-release technology as the brand-name drug.32 The manufacturer must also prove bioequivalence, showing that the generic drug delivers the same amount of the active ingredient to the bloodstream at about the same rate and extent as the brand-name drug,.32 Furthermore, the manufacturer must demonstrate manufacturing capability and consistency, adhering to the same strict quality standards as those of brand-name drugs.27 The ANDA must also include evidence that the inactive ingredients used in the generic product are safe and acceptable31, and that the drug will remain stable and effective for at least the same amount of time as the brand-name product, supported by stability testing.31 Finally, the labeling for the generic drug must be the same as the brand-name drug’s label, with certain limited exceptions.31 Unlike the approval process for new brand-name drugs, the ANDA process does not typically require generic manufacturers to repeat the costly animal and clinical trials that were required of the brand-name medicines to demonstrate safety and effectiveness.8 The Hatch-Waxman Act, officially known as the “Drug Price Competition and Patent Term Restoration Act of 1984,” established this abbreviated pathway for generic drug approval.47 This legislation aimed to increase competition in the pharmaceutical market by balancing incentives for innovation with the promotion of generic drug availability.47 The Act also introduced the concept of “first-to-file” exclusivity, which may grant the first generic drug manufacturer to submit a complete ANDA for a specific brand-name drug 180 days of exclusive marketing rights, provided there are no existing patents or exclusivities preventing its approval 34,.48 The FDA conducts a rigorous review process of the submitted ANDA data, evaluating information on manufacturing, bioequivalence, and labeling to ensure that every approved generic drug is safe, effective, high-quality, and substitutable for the brand-name drug.8 FDA inspectors also visit manufacturing facilities to verify compliance with quality standards.27
Bioequivalence:Bioequivalence is a critical concept in the generic drug approval process, signifying that a generic drug performs in the body in the same way as the brand-name drug.7 This is essential for ensuring therapeutic equivalence, meaning that the generic product can be expected to have the same clinical effect and safety profile as the prescribed brand-name product when substituted.29 To demonstrate bioequivalence, generic drug companies must conduct studies, often involving human volunteers, that compare the generic drug to the brand-name drug.32 These studies measure the rate and extent to which the active ingredient is absorbed into the bloodstream and becomes available at the site of action.29 FDA scientists then rigorously analyze the results of these studies to ensure that the generic drug will produce the same clinical outcome as the brand-name drug.32 There is an acceptable range of variability in bioequivalence, typically within approximately 3.5% difference in absorption between the generic and brand-name medicines.24 This small amount of difference is considered not medically important and is also observed between different batches of the same brand-name drug.27 The FDA sets limits on how much variability is acceptable during manufacturing for both brand-name and generic medicines.24 The FDA publishes the Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book, which lists approved generic drugs and provides therapeutic equivalence evaluations 37,.47 Drugs with an AB rating in the Orange Book are considered therapeutically equivalent to their brand-name counterparts and can be substituted without the need for additional clinical tests or examinations.37 This rating system serves as a crucial guide for healthcare professionals and patients in making informed decisions about generic substitution.
Biosimilars:Biosimilars are biological products that are highly similar to an already FDA-approved biological product, known as the reference product, and have no clinically meaningful differences in terms of safety, purity, and potency (safety and effectiveness).43 They can be thought of as being similar to generic drugs, but for medications known as biologics, which are much larger and more complex in structure compared to traditional molecular drugs.43 Biosimilars are approved through an abbreviated pathway (351(k)) established by the Biologics Price Competition and Innovation Act of 2009, which allows manufacturers to rely in part on the FDA’s previous determination of safety and effectiveness for the reference product.56 This pathway places a greater emphasis on analytical studies to demonstrate the similarity between the biosimilar and the reference product.59 Unlike reference products, biosimilar manufacturers do not need to conduct as many expensive and lengthy clinical trials to establish safety and effectiveness.54 Instead, they provide comparative data demonstrating the biosimilarity to the reference product through analytical, nonclinical, and clinical studies, often in a stepwise manner.54Interchangeability is a specific designation for a biosimilar that meets additional requirements, allowing it to be substituted for the reference product at the pharmacy level without consulting the prescribing doctor, subject to state pharmacy laws.55 This designation typically requires demonstrating that switching between the biosimilar and the reference product does not increase safety risks or decrease effectiveness compared to using the reference product without switching.54 Biosimilars offer the potential for significant cost savings in the market for biologic medications, which are often used to treat serious conditions like cancer and autoimmune diseases.43
5. The Impact of Generic Competition on Drug Prices:
Inverse Relationship Between Number of Competitors and Price:A well-established finding in pharmaceutical economics is the inverse relationship between the number of generic competitors in a market and the price of the drug.9 Studies consistently demonstrate that as more generic manufacturers enter the market for a particular drug, the price of that drug tends to decline significantly. For instance, research indicates that drug prices fall by approximately 20% in markets with about three generic competitors.62 This price reduction becomes even more pronounced as the number of competitors increases; markets with ten or more generic suppliers often see price declines of 70% to 80% or even more relative to the pre-generic entry price of the brand-name medication, typically within two to three years after the first generic enters the market.62 Notably, the entry of the first generic competitor into the market typically offers the most substantial discount off the price of the brand-name drug, with average price reductions of around 39% observed upon the arrival of the first generic.65 Subsequent generic entrants continue to drive prices down, although the magnitude of the price reduction may lessen with each additional competitor.65 This competitive dynamic underscores the critical role of facilitating generic market entry to achieve significant cost savings in prescription drug spending.
Price Erosion After Generic Entry:Following the expiration of a brand-name drug’s patent exclusivity and the subsequent entry of generic versions, a phenomenon known as price erosion typically occurs.48 This involves a decline in the price of both the original brand-name drug and its generic equivalents over time. Studies have shown that the prices of oral generic medicines can drop substantially within the first twelve months after generic entry, with reductions ranging from 66% to 79% compared to the pre-expiry brand prices.71 This price decline often continues over the subsequent years, with generic oral drugs eventually costing 80% to 90% less than the brand-name drugs they replace within approximately five years.71 Research also suggests that price reductions tend to occur more rapidly for oral medications compared to injectable drugs, which often attract fewer generic competitors.71 The swift and significant price erosion following generic entry highlights the powerful cost-saving potential of generic competition in the pharmaceutical market, providing substantial benefits to patients and healthcare payers.
Examples of Significant Price Reductions:Numerous examples illustrate the significant price reductions that can result from generic competition. One notable case is atorvastatin (Lipitor), a widely used cholesterol-lowering medication, where the introduction of generic versions led to a dramatic price decrease, with generic pills costing as little as 20 cents compared to the brand’s $4 per pill.72 Across the broader market, data indicates that when six or more generic manufacturers are competing, the prices of generic drugs can fall by over 95% compared to the original brand-name prices.67 The initial entry of just one generic competitor typically results in an average price reduction of 39%, with the potential for further savings as more generics enter the market (e.g., an additional 15% saving with a second generic competitor).65 Experts estimate that the US healthcare system could save approximately $36 billion annually if patients consistently chose generic options when available, underscoring the substantial economic impact of generic drug utilization.74 These real-world examples provide compelling evidence of the effectiveness of generic competition in driving down drug costs and increasing affordability for patients.
Impact of Authorized Generics:Authorized generics (AGs) are a unique category of generic drugs that are essentially the same as the brand-name drug but are marketed under a generic label, often by the same company that manufactures the brand-name product or under a licensing agreement.75 The Federal Trade Commission (FTC) has found that the introduction of AGs can lead to modest reductions in both retail and wholesale drug prices during the initial 180-day exclusivity period granted to the first generic challenger, with retail prices being 4-8% lower and wholesale prices 7-14% lower compared to scenarios without AG competition.75 However, concerns exist regarding the broader impact of AGs on generic competition. The presence of an AG can substantially affect the revenues of competing generic firms, potentially reducing the first-filing generic’s revenues by 40-52% during the exclusivity period and by 53-62% in the 30 months following exclusivity if facing AG competition.75 This reduction in expected profits could potentially disincentivize generic companies from challenging patents on brand-name drugs, particularly those with lower sales volumes.75 Furthermore, the FTC has identified instances where brand-name companies may use the threat of launching an AG as a tactic to induce generic companies to delay their market entry, ultimately hindering competition and keeping prices higher for consumers.75 While AGs may offer some short-term price relief, their long-term effects on generic market dynamics and overall price competition remain a subject of scrutiny and debate.
6. Barriers to Entry for Generic Drugs:
Patent Barriers:Brand-name pharmaceutical companies utilize the patent system to protect their innovations, typically receiving patent protection for up to 20 years from the date the patent was filed, which prevents generic manufacturers from entering the market with competing versions during this period.17 However, companies often employ strategies to extend this market exclusivity beyond the initial patent term. One such tactic is “evergreening,” which involves obtaining additional patents on minor modifications or reformulations of the original drug, such as altered inactive ingredients, different salt forms, or new delivery methods, even if these changes offer little or no therapeutic advantage.18 Research indicates that this practice is widespread, with a significant percentage of new patents being for existing medications rather than novel treatments.81 Another strategy involves creating “patent thickets,” which are complex webs of overlapping patents protecting various aspects of a single drug. These thickets can make it extraordinarily difficult for generic manufacturers to navigate the legal landscape and introduce more affordable alternatives, even after the original patent on the active ingredient has expired.81 Furthermore, patent linkage systems, which connect the FDA’s drug approval process with the patent status of brand-name drugs, can also serve as a barrier by requiring regulatory authorities to consider patent infringement when reviewing generic applications.85 These various patent-related strategies employed by brand-name companies can significantly delay or even prevent the entry of generic drugs into the market, allowing the brand-name manufacturers to maintain their monopoly pricing and hindering the availability of more affordable medications for patients.
Regulatory Hurdles (FDA Approval Process):While the Abbreviated New Drug Application (ANDA) process for generic drug approval is designed to be streamlined compared to the process for new drugs, it still involves rigorous requirements and can present significant hurdles that may delay the entry of generics into the market.35 Demonstrating bioequivalence to the brand-name drug, proving that the generic version performs in the body in the same way, can be particularly challenging, especially for complex generics, which include drugs with complex active ingredients, formulations, delivery systems, or drug-device combinations.34 The FDA’s review process itself can also contribute to delays due to potential backlogs in application reviews, the need for generic manufacturers to provide additional information or conduct further studies in response to FDA queries, and issues related to compliance at manufacturing facilities.35 Moreover, non-manufacturers seeking FDA approval for repurposed generic drugs, such as non-profit organizations aiming to explore new uses for off-patent medications, often face significant challenges in navigating the existing approval pathways, particularly in providing required chemistry, manufacturing, and controls (CMC) data and product samples.90 These regulatory complexities and potential delays can ultimately limit the timely availability of lower-cost generic alternatives for patients.
REMS (Risk Evaluation and Mitigation Strategies):The Food and Drug Administration (FDA) can require manufacturers of drugs with known risks to develop a Risk Evaluation and Mitigation Strategy (REMS) program to ensure that the benefits of the drug outweigh its risks.91 While REMS programs are intended to improve drug safety, concerns have arisen regarding their potential misuse by brand-name companies to block or delay the entry of generic drugs into the market.91 One tactic involves brand-name manufacturers denying generic manufacturers access to samples of the branded drug, which are often necessary for conducting the bioequivalence studies required for FDA approval.91 Brand companies may cite REMS restrictions, particularly elements to assure safe use (ETASU), as a reason for not providing samples, even in cases where the FDA has stated that the REMS program should not prohibit the provision of samples.94 Another potential barrier arises when a brand-name drug is subject to a REMS program, as the generic manufacturer must often negotiate a single, shared REMS program with the brand-name company.94 Brand-name manufacturers can sometimes prolong these negotiations, thereby delaying the generic drug from entering the market.94 This misuse of REMS and restricted access programs has been estimated to cost the US health system billions of dollars annually 92, impeding patient access to more affordable generic medications.
Citizen Petitions:The Food and Drug Administration (FDA) provides a process for interested parties to file citizen petitions, requesting the agency to take or refrain from taking certain administrative actions, including delaying or rejecting drug applications.88 While intended to allow for the raising of legitimate concerns about drug safety and efficacy, there is evidence suggesting that brand-name pharmaceutical companies have increasingly misused this process to delay the approval and market entry of generic drugs, thereby extending their period of market exclusivity and maintaining higher prices.83 These petitions are often filed shortly before the anticipated generic entry date and may contain claims that are ultimately denied by the FDA.89 Even though the FDA typically denies a significant portion of these petitions, the review process can take several months, leading to substantial delays in generic approvals.89 Studies have estimated that the financial cost to society from these petition-induced delays can amount to billions of dollars.89 In response to these concerns, the FDA has taken steps to deter the gaming of the citizen petition process, including issuing revised guidance and increasing scrutiny of petitions filed close to generic approval dates.88
Pay-for-Delay Agreements (Reverse Payment Settlements):Pay-for-delay agreements, also known as reverse payment settlements, occur when brand-name pharmaceutical companies settle patent infringement litigation with generic drug manufacturers by providing the generic company with financial compensation in exchange for agreeing to delay the market entry of their generic version until a specified date.18 These agreements are considered anti-competitive because they effectively extend the brand-name company’s monopoly beyond the expiration of its patent, preventing the price-lowering effects of generic competition and costing consumers billions of dollars in higher drug prices annually.104 While brand-name companies argue these settlements avoid costly and uncertain litigation, critics contend they prioritize profit over patient access to affordable medications.105 Legal challenges to pay-for-delay agreements have been increasing, with the US Supreme Court ruling that such agreements could violate antitrust laws.104 There have also been legislative efforts to ban or restrict these agreements to promote generic competition and lower drug costs.18
Market Size and Profitability:The decision for a generic drug manufacturer to enter the market is significantly influenced by the potential market size and the anticipated profitability of the generic product.109 Generic manufacturers are more likely to invest in the development and approval process for drugs that have a large patient base and the potential for substantial sales volume.109 Conversely, low profitability can act as a significant barrier to generic entry, particularly in markets for drugs with smaller patient populations or those that are more complex or costly to manufacture, such as generic injectable drugs.110 In some cases, the expected returns may not justify the investment required to navigate the regulatory hurdles and potential patent challenges.109 This can lead to situations where, even after patent expiration, certain drugs may face limited or no generic competition, allowing the brand-name manufacturer to continue charging high prices.109 The low profitability of certain generic drugs can also contribute to drug shortages, as manufacturers may decide to discontinue production if the margins are too thin.70 Therefore, the economic attractiveness of the market plays a crucial role in fostering generic competition and ensuring a stable supply of affordable medications.
7. Government Policies and Initiatives to Promote Generic Competition:
The Hatch-Waxman Act (Drug Price Competition and Patent Term Restoration Act of 1984):The Hatch-Waxman Act stands as a landmark piece of legislation that fundamentally reshaped the landscape of generic drugs in the United States.47 Enacted to balance the competing interests of encouraging pharmaceutical innovation and promoting the availability of lower-cost generic medicines, the Act established the abbreviated new drug application (ANDA) pathway for generic drug approval.47 This streamlined process allowed generic manufacturers to seek FDA approval by demonstrating bioequivalence to a previously approved brand-name drug, without the need to repeat extensive clinical trials.47 The Act also introduced incentives for generic companies to challenge patents on brand-name drugs by granting a 180-day period of market exclusivity to the first generic applicant to successfully do so.65 Since its enactment, the Hatch-Waxman Act has been remarkably successful in increasing the utilization of generic drugs, which now account for approximately 90% of all prescriptions dispensed in the US, up from just 19% in 1984.47 This surge in generic availability has led to substantial cost savings for patients and the healthcare system, with generic drugs typically priced significantly lower than their brand-name counterparts.99 The Act’s framework continues to be a cornerstone of the US pharmaceutical market, fostering competition and affordability while also aiming to protect pharmaceutical innovation.
FDA Drug Competition Action Plan (DCAP):In 2017, the FDA announced the Drug Competition Action Plan (DCAP) to further promote robust and timely market competition for generic drugs and enhance the efficiency and transparency of the generic drug review process, all while maintaining rigorous scientific standards.64 The DCAP focuses on three key areas: streamlining standards for complex generic drugs, which are often harder to develop and face less competition; closing loopholes to prevent delays by brand-name companies, such as addressing “gaming” tactics that frustrate generic approvals; and improving the overall generic drug approval process by clarifying regulatory expectations and enhancing review efficiency.122 Specific initiatives under DCAP include prioritizing the review of ANDAs for drugs with limited or no competition (sole-source drugs) to encourage market entry 89; issuing product-specific guidance to provide clarity on regulatory requirements for developing generic versions of specific drugs or drug classes 113; and taking steps to address the misuse of Risk Evaluation and Mitigation Strategies (REMS) programs and the abuse of the citizen petition process by brand-name companies to delay generic competition.89 The FDA also maintains a public list of off-patent, off-exclusivity brand-name drugs that lack approved generic equivalents to encourage generic drug development in these areas.113
Federal Trade Commission (FTC) Actions:The Federal Trade Commission (FTC) plays a crucial role in promoting generic competition by enforcing antitrust laws within the pharmaceutical market.75 The FTC actively investigates and challenges anticompetitive practices employed by pharmaceutical companies that may hinder the entry of lower-cost generic drugs. Key areas of FTC enforcement include challenging pay-for-delay agreements, where brand-name companies compensate generic firms to delay market entry 107; scrutinizing anticompetitive patent listings in the FDA’s Orange Book that may improperly block generic competition 134; and taking action against product hopping strategies, where brand-name manufacturers make minor reformulations to impede generic substitution of the original product.137 The FTC also reviews mergers and acquisitions within the pharmaceutical industry to ensure they do not substantially lessen competition.132 Additionally, the FTC has launched inquiries into the practices of Pharmacy Benefit Managers (PBMs) to examine their potential impact on generic drug pricing and competition, focusing on issues such as rebates and formulary management.133 Through these various actions, the FTC aims to foster a more competitive pharmaceutical marketplace that benefits consumers through lower drug prices.
State Initiatives:Recognizing the challenges of high prescription drug costs, many states have also taken proactive steps to address the issue through a variety of legislative and regulatory measures.149 These state-level initiatives encompass several key areas, including the enactment of drug price transparency laws that require manufacturers and other entities in the drug supply chain to report pricing information to state authorities, aiming to shed light on opaque pricing practices.153 States have also focused on regulating Pharmacy Benefit Managers (PBMs), implementing stricter oversight, outlawing practices like “gag clauses” that prevent pharmacists from informing patients about lower-cost options, and curbing spread pricing.153 Some states have explored or enacted legislation related to drug importation from Canada as a means to access lower-priced medications.153 Additionally, states have introduced measures to address price gouging on generic and off-patent drugs by enabling legal action against companies that dramatically increase prices.153 Finally, a growing number of states have established prescription drug affordability boards tasked with reviewing high-cost drugs and making recommendations or setting upper payment limits to ensure affordability for consumers and payers.153 While the extent and effectiveness of these state initiatives vary, they demonstrate a concerted effort to tackle the complex problem of prescription drug costs at a sub-federal level.
The Inflation Reduction Act (IRA) of 2022:The Inflation Reduction Act (IRA) of 2022 includes several significant provisions aimed at lowering prescription drug costs for Medicare beneficiaries and reducing drug spending by the federal government.159 A key component of the IRA is the establishment of a Medicare Drug Price Negotiation Program, which allows the Secretary of Health and Human Services (HHS) to negotiate prices with drug companies for certain high-cost, single-source brand-name drugs covered under Medicare Part B and Part D.160 This marks a significant change as Medicare was previously restricted from directly negotiating drug prices. The IRA also includes provisions to cap annual out-of-pocket spending for Medicare Part D enrollees at $2,000 starting in 2025 159, and to require drug manufacturers to pay rebates to Medicare if their drug prices increase faster than the rate of inflation.159 The first round of negotiations in 2024 resulted in agreed-upon lower prices for 10 drugs, projected to save Medicare an estimated $6 billion in the first year.159 While the IRA aims to provide substantial relief to Medicare beneficiaries, its potential impact on the generic drug market and pharmaceutical innovation remains a subject of ongoing discussion and analysis.70
8. Stakeholder Perspectives:
Pharmaceutical Companies:Pharmaceutical companies often argue that high drug prices are essential to fund the substantial and risky research and development (R&D) process required to bring new, innovative medicines to market.17 They emphasize the significant costs associated with drug discovery, preclinical testing, clinical trials, and regulatory approvals, as well as the high failure rate in drug development.17 To counter the impact of generic competition once their patents expire, pharmaceutical companies employ various strategies aimed at retaining market share and profitability. These include patent evergreening, where they seek additional patents on modifications or new formulations of existing drugs 78; introducing authorized generics to compete directly with generic versions 78; entering into pay-for-delay agreements with generic manufacturers to postpone their market entry 83; and product hopping, where they switch patients to slightly modified, newly patented drugs before the original drug faces generic competition.79 Pharmaceutical companies often express concerns that government price setting, such as through the IRA, will negatively impact their ability to invest in future R&D, potentially leading to fewer new medicines for patients.70 While they participate in rebate and discount programs with payers and PBMs, they also point to the role of these intermediaries and other factors in the overall cost of drugs.13
Pharmacies:Pharmacies play a critical role in dispensing generic drugs to patients as safe, effective, and more affordable alternatives to brand-name medications.37 They often actively encourage generic substitution at the pharmacy counter, helping to lower patients’ out-of-pocket costs and improve medication adherence.37 Pharmacies recognize the significant cost savings that generic drugs offer to both patients and the broader healthcare system.37 However, their operations and profitability are significantly influenced by Pharmacy Benefit Managers (PBMs), who negotiate drug prices with manufacturers and determine pharmacy reimbursements.141 Independent pharmacies often face challenges in competing with large retail chains and PBM-owned pharmacies, particularly regarding discounted generic drug programs.141 While chain pharmacies may offer very low prices on some generics through membership programs, independent pharmacies may sometimes offer better prices on other generic medications and may have more flexibility in adjusting prices.182 Overall, pharmacies act as key intermediaries in facilitating patient access to affordable generic drugs while navigating a complex landscape of pricing and reimbursement determined by manufacturers, PBMs, and insurers.
Patient Advocacy Groups:Patient advocacy groups are primarily focused on ensuring that patients have access to the medications they need at affordable prices.1 They strongly support policies that promote generic competition as a means to lower drug costs and increase access, such as allowing Medicare to negotiate drug prices, addressing anticompetitive tactics employed by pharmaceutical companies to delay generic entry (like patent abuse and pay-for-delay agreements), and streamlining the FDA approval process for generics.2 While their primary goal is affordability, some patient advocacy groups may also recognize the importance of pharmaceutical innovation and may, at times, align with industry arguments regarding the need for sustained research funding, particularly for treatments for rare diseases or conditions with limited options.190 Many patient advocacy organizations also play a role in educating patients about the safety, effectiveness, and cost-saving benefits of generic drugs to encourage their use and address any misconceptions that may exist.1 Ultimately, these groups serve as powerful voices for patients, advocating for policies that prioritize access to affordable medications and challenge practices that hinder generic competition and inflate drug prices.
9. International Comparison of Drug Pricing Models and the Role of Generics:
Canada: Canada employs a tiered pricing model for generic drugs in most provinces, where the price is capped as a percentage of the brand-name drug’s price, with lower percentages applied as more generic manufacturers enter the market (e.g., 75% for one generic, down to 25% or even 18% for three or more).193 The pan-Canadian Pharmaceutical Alliance (pCPA) plays a significant role in negotiating lower prices for patented, generic, and biosimilar drugs on behalf of the provinces.195 While Canada’s generic prices have decreased in recent years, they were historically high compared to other developed nations.195 However, Canada has a high rate of generic dispensing, accounting for a substantial portion of the prescription volume.195
United Kingdom: The UK operates with a dual system involving the Voluntary Scheme for Branded Medicines Pricing and Access (VPAS) and a statutory scheme, both of which involve manufacturers providing price concessions (rebates) to the government.198 The National Institute for Health and Care Excellence (NICE) conducts cost-effectiveness assessments to guide decisions on drug reimbursement.198 The UK also has a high utilization of generic medicines, and their actual selling prices are generally lower than in many other European countries.200
Germany: Germany utilizes the AMNOG system, which assesses the clinical benefit of new drugs. Drugs deemed to offer no additional benefit over existing treatments are subject to reference pricing, where reimbursement is capped based on the prices of comparable drugs, including generics.202 Non-profit “sickness funds” manage health insurance and negotiate prices for drugs with demonstrated added benefit.202 Germany also has a high rate of generic prescribing, with pharmacists mandated to dispense lower-cost generics unless the physician specifies otherwise.206
Japan: Japan’s universal health insurance system sets prices for new and existing drugs, with regular price revisions that tend to lower prices over time.207 The Price Maintenance Premium (PMP) aims to protect innovative drugs from these price reductions.207 The government has been actively working to increase the use of generic drugs, with reimbursement prices for generics set significantly lower than for original drugs, and policies in place to encourage generic prescribing and dispensing.208
Australia: Australia employs the Pharmaceutical Benefits Scheme (PBS), a government-subsidized program.212 The Pharmaceutical Benefits Advisory Committee (PBAC) evaluates the cost-effectiveness of drugs for PBS listing.213 Australia uses reference pricing and implements mandatory price reductions for generics, along with a price-disclosure policy.213 While generic use is growing, substitution rates have been historically lower compared to some other countries.216
Comparison of Generic Drug Prices and Use: In 2022, the US had lower prices for unbranded generic drugs compared to a composite of 33 OECD countries.217 The US also has a very high generic prescription volume, accounting for 90% of the market in 2022, significantly higher than the 41% average in those other countries.219 However, overall drug prices in the US, including brand-name medications, were nearly three times as high as in the comparison countries.20 US brand drug prices were over four times higher than in other OECD countries.218 This comparison highlights that while the US excels in generic drug utilization and price, the high cost of brand-name drugs contributes to its significantly higher overall drug spending compared to other developed nations that often employ more direct government intervention in drug pricing.
10. Synthesis and Conclusion: Navigating the Complexities of Drug Prices and Generic Competition:
Generic competition stands as a cornerstone in the effort to lower the high cost of prescription drugs in the United States, offering patients and the healthcare system significant opportunities for savings. The effectiveness of generic drugs, mandated by rigorous FDA approval processes focusing on bioequivalence, ensures that these lower-cost alternatives provide the same clinical benefits as their brand-name counterparts. The dynamics of the pharmaceutical market, however, are complex and influenced by a multitude of factors. While increased generic competition demonstrably leads to lower drug prices, with each additional competitor typically driving costs down further, the entry of generic drugs is often impeded by various barriers. Patent protection, while intended to incentivize innovation, can be strategically extended through evergreening and patent thickets, delaying the availability of more affordable options. Regulatory hurdles within the FDA approval process, particularly for complex generics, and the potential misuse of safety programs like REMS and procedural mechanisms like citizen petitions by brand-name companies can also hinder timely generic market entry. Furthermore, economic factors such as market size and profitability play a crucial role in attracting generic manufacturers, and low profit margins for certain drugs can limit competition and even contribute to shortages.
Government policies and initiatives, such as the landmark Hatch-Waxman Act, have been instrumental in fostering a robust generic drug market in the US. The FDA’s ongoing efforts through the Drug Competition Action Plan aim to address specific barriers and streamline the approval process. The FTC plays a vital role in safeguarding competition by challenging anticompetitive practices, and states are increasingly active in implementing their own measures to control drug costs. The recent Inflation Reduction Act represents a significant federal step towards lowering prescription drug prices for Medicare beneficiaries, although its broader impact is still unfolding. The perspectives of various stakeholders – pharmaceutical companies emphasizing the need for R&D funding, pharmacies facilitating generic dispensing, and patient advocacy groups championing affordability – highlight the diverse and often conflicting interests at play.
International comparisons reveal that while the US has a high rate of generic drug utilization and relatively low generic prices compared to some other developed nations, its overall drug spending remains significantly higher due to the elevated prices of brand-name medications. Countries like Canada, the UK, Germany, Japan, and Australia employ different models, often involving more direct government intervention in pricing and a greater emphasis on value assessment, which appear to be more effective in controlling overall drug costs.
In conclusion, the relationship between drug prices and generic competition in the US is multifaceted and dynamic. While generic competition provides a powerful mechanism for reducing costs, its full potential is often constrained by a complex interplay of market forces, regulatory frameworks, stakeholder behaviors, and policy interventions. Addressing the challenge of high drug prices requires a comprehensive and sustained effort to foster a more competitive pharmaceutical market, ensuring both affordable access to essential medicines and continued innovation in the development of new therapies.
11. Recommendations:
Strengthen Regulatory Frameworks:
Enhance FDA resources and processes to expedite the review and approval of ANDAs, particularly for complex generics and first-to-file applicants, to bring more competition to the market sooner and address potential shortages.
Implement stricter oversight and enforcement mechanisms to prevent the misuse of REMS programs and citizen petitions by brand-name companies to delay generic entry, ensuring these mechanisms are used for their intended purposes of safety and public health.
Revisit and reform patent laws to curb practices like excessive evergreening and the creation of patent thickets that hinder generic competition without providing significant therapeutic benefit, potentially by increasing scrutiny of secondary patents and their claims.
Promote Price Negotiation and Transparency:
Expand the authority of Medicare and other government payers, including Medicaid, to negotiate drug prices directly with pharmaceutical manufacturers, leveraging their purchasing power to achieve lower costs, as is common in other developed nations.
Increase transparency throughout the pharmaceutical supply chain by requiring the disclosure of pricing information, rebates, discounts, and fees among manufacturers, PBMs, insurers, and pharmacies to shed light on the true costs of medications and identify potential areas for savings.
Foster Generic Market Competition:
Implement policies and incentives to encourage generic drug manufacturers to enter markets with limited competition, particularly for older, off-patent drugs that have experienced significant price increases or are at risk of shortage, potentially through tax credits, grants, or guaranteed purchase volumes.
Address the potential negative impacts of authorized generics on independent generic competition through regulatory scrutiny, potential limitations on their market exclusivity, or measures to ensure fair competition.
Explore measures to ensure the economic sustainability of generic drug manufacturing, particularly for essential medicines and injectables, possibly through government contracts, subsidies, or policies that guarantee a reasonable return on investment.
Learn from International Models:
Carefully evaluate the drug pricing models and generic drug policies implemented in other developed countries, such as Canada, the UK, Germany, Japan, and Australia, to identify best practices that could be adapted for the US context. Consider strategies like reference pricing, value-based pricing, and government negotiation that have demonstrated success in controlling drug costs while maintaining access to medications.
Empower Patients and Healthcare Providers:
Enhance patient education about the safety, effectiveness, and cost-saving benefits of generic drugs through public awareness campaigns and accessible information from healthcare providers and regulatory agencies.
Encourage healthcare providers to prioritize prescribing generic medications whenever clinically appropriate and provide them with readily accessible information on drug costs and therapeutic alternatives to facilitate cost-conscious prescribing.
Address patient concerns and misconceptions about generic drugs through clear, consistent, and evidence-based communication from healthcare professionals and regulatory agencies, emphasizing the rigorous standards of FDA approval for generics.
Monitor and Enforce Anticompetitive Practices:
Strengthen the FTC’s oversight and enforcement capabilities to proactively address anticompetitive behaviors in the pharmaceutical market, including pay-for-delay agreements, improper patent listings, and other tactics that stifle generic competition and inflate drug prices, ensuring that penalties for such practices are significant enough to deter them.
Key Tables:
Table: Average Price of Selected Brand-Name Drugs in the US and Canada (2024)
Drug Name
Condition Treated
US Price (USD)
Canadian Price (USD)
Tradjenta
Diabetes
186
73
Tresiba
Diabetes
244
117
Anoro
Pulmonary Disease
248
76
Praluent
High Cholesterol
658
430
Vimpat
Seizures
873
294
Cosentyx
Arthritis
5,066
1,353
Plegridy
Multiple Sclerosis
6,963
2,780
Ibrance
Cancer
11,542
4,325
Harvoni
Hepatitis C
12,642
18,093
Revlimid
Cancer
21,375
8,193
Source: Data from.223 Prices are for a one-month supply where available.
Table: Impact of Number of Generic Competitors on Drug Prices
Number of Generic Competitors
Estimated Price Reduction (Relative to Brand Price)
Source(s)
1
39%
65
2
54%
67
3-5
15-40% additional reduction
62
6-9
> 95%
67
10+
70-80% relative to pre-generic entry price
62
Note: These are general estimates and may vary depending on the specific drug and market conditions.
Table: Key Features of Drug Pricing Models in Selected Developed Countries
Country
Key Features
Role of Generics
Notable Aspects
Canada
Tiered pricing (capped % of brand), pCPA negotiations
High utilization, prices lower than US but historically high
Provinces regulate prices, bulk purchasing initiatives
United Kingdom
Voluntary (VPAS) and statutory schemes (rebates), NICE cost-effectiveness assessment
High utilization, prices generally lower than EU
Government negotiates with industry, incentivizes generic prescribing
Germany
AMNOG (benefit assessment), reference pricing, sickness fund negotiations
High utilization, pharmacists mandate generic substitution
Prices lower than US, value-based pricing for new drugs
Japan
Universal health insurance sets prices, biennial (annual) price revisions, PMP for innovation
Government targets increased generic use, reimbursement prices set low
Stakeholder Perspectives of the Inflation Reduction Act’s (2022) Impact on Prescription Drugs: A Narrative Review – PubMed Central, accessed April 9, 2025, https://pmc.ncbi.nlm.nih.gov/articles/PMC10748351/
What do people really think of generic medicines? A systematic review and critical appraisal of literature on stakeholder perceptions of generic drugs – PubMed Central, accessed April 9, 2025, https://pmc.ncbi.nlm.nih.gov/articles/PMC4520280/
