Generic pharmaceuticals saved US healthcare $734 billion over last decade

19 May 2009

The use of generic pharmaceuticals saved the American healthcare system more than $734 billion in the last decade (1999-2008), with approximately $121 billion in savings in 2008 alone, according to a report published by the Generic Pharmaceutical Association (GPhA) and commissioned from IMS Health.

GPhA released the analysis as part of its year long celebration of the 25th anniversary of the 1984 Drug Price Competition and Patent Term Restoration Act, commonly called the Hatch-Waxman Act.

"In 1984, it was predicted that the Hatch-Waxman Act would save our country $1 billion in the first decade. Now, generic medicines save more than that every three days," said GPhA President and CEO Kathleen Jaeger. "These savings are truly remarkable and demonstrate the real value of generic medicines for consumers and the entire health care system."

In the mid 1990s, the Congressional Budget Office released an analysis showing that in 1994, the 10th anniversary of the enactment of Hatch-Waxman, annual savings from generics had reached approximately US$8 billion to US$10 billion. The new data released today shows that by 1999 — 15 years after Hatch-Waxman became law — generics were generating US$49 billion in annual savings.

From 1999 to 2004, generic savings increased steadily at an annual rate of between 3% and 10%, with savings growing from US$49 billion in 1999 to US$69 billion in 2004. Beginning in 2005 and continuing through 2008, the savings generated by generics grew at a double-digit annual pace, with the highest growth rate coming in 2008 when the savings topped US$121 billion, a full 20% ahead of the prior year.

The higher growth rates seen during the more recent years of the study were driven by two factors:

  • an increase in the overall percentage of generic utilization from 61% entering 2006 to 69% by the close of 2008; and
  • the loss of patent protection by several brand-name blockbusters, including Pravachol, Ambien, Fosamax, Zoloft and Zocor.

The analysis also found that generics introduced prior to 1999, generated approximately US$552 billion of the US$734 billion in total savings. Savings generated by generic products introduced between 1999 and 2008 provided an additional US$182 billion in savings during the period, with nearly half of this coming from 2006 to 2008. Approximately 60% of the US$121 billion in savings achieved in 2008 came from generics approved over the past 10 years.

Treatments in the therapeutic categories of metabolism, cardiovascular, anti-infectives, and central nervous system (CNS) have experienced the highest growth in savings as a result of generic utilization. More than 57% of the total savings between 1999 and 2008, totaling some US$420 billion, came from the cardiovascular and CNS categories.

Generic metabolism and anti-infective drugs combined to account for an additional 19% of the savings. In total, these four therapeutic categories resulted in overall savings of US$561 billion, or 76% of total savings.

"To give some context to the magnitude of the savings created by generic pharmaceuticals over the past decade, one needs only consider that the US$734 billion exceeds the cost of the Troubled Assets Relief Program approved last fall, and is nearly the cost of the American Recovery and Reinvestment Act approved in February," Jaeger noted.

"The Hatch-Waxman Act is perhaps the most important piece of pro-consumer legislation enacted over the past 25 years. It established a balance between protecting intellectual property, which provides the incentives to innovate new medicines, and encouraging the development of safe, effective and more affordable generic versions of existing drugs.

Among the flawed arguments during the debate over Hatch-Waxman in 1984 was the claim that generic competition would harm innovation. In fact, since the enactment of Hatch-Waxman generic competition has helped unleash unprecedented investment in new drug research and development, which in turn has led to a period of unparalleled pharmaceutical innovation," Jaeger said.

GPhA noted that the study is predictive of the greater savings that could be achieved in future years through the implementation of initiatives to:

  •  increase investment in FDA's Office of Generic Drugs (OGD) to ensure the timely review and approval of new generic pharmaceuticals;
  •  establish a science-based biogeneric approval pathway that promotes innovation while providing access to more affordable versions of lifesaving biologic medicines; and
  •  encourage greater use of FDA-approved generic medicines in publicly-funded prescription drug benefit plans, such as Medicaid, Medicare and other federal/state programs. For example, a 1% increase in the generic utilization rate in the Medicaid program could yield approximately US$490 million in added annual savings.

"The data on the tremendous savings generated by generic competition provide dramatic evidence that increasing the availability and use of generic medicines are immediate steps that can be taken to further increase health care savings," Jaeger said.

Study background

In early 2009, GPhA commissioned IMS Health to conduct an analysis of the savings created by generic utilization from 1999 through 2008. The principle objective of the analysis was to quantify the total cost savings generic pharmaceuticals provide to the overall US healthcare system.

The analysis included only those pharmaceutical molecules for which generic and brand products were available to consumers and prescribers. The analysis utilized IMS data of sales and volumes for both branded and generic products to estimate cost savings. For an explanation of the study methodology see

The generic substitution rate in the US in 2008, according to IMS statistics, was approximately 69%, with generic medicines filling more than 2.6 billion of the approximately 3.8 billion prescriptions dispensed. However, spending on generic prescriptions accounted for just 16 cents of every dollar spent for prescription medicines.

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