The effect of generic competition on the price of brand-name drugs

Joel Lexchin
Health Policy 2004, 68 (1): 47-54

BACKGROUND: Literature from the US has shown that brand-name manufacturers do not compete on price once generic competitors become available. This study was undertaken to investigate if this is also true in Canada.

METHODS: Editions of the Ontario Drug Benefit Formulary were used to identify brand-name drugs that lacked generic competition in July 1990 but had acquired one or more generic competitors by December 1998. Prices of the brand-name drugs were compared before generic competition, at the point when generic competition started and subsequent to the initiation of competition.

RESULTS: Price changes for 81 different products in 144 separate presentations were analysed. There was no statistically significant change in brand-name prices when generic competition started. The movement of brand-name prices was not influenced by whether the generic was made by the company producing the brand-name product or price freezes imposed by the Ontario government. When generics first became available having four or more generics was associated with a rise in the price of the brand-name drugs compared to having one, two or three generic competitor(s).

INTERPRETATION: The lack of price competition may lead to increased costs in the private market. Private insurance companies generally do not require generic substitution and some provinces do not require generic substitution for cash-paying customers. Maintaining higher prices on brand-name drugs impacts on the prices of new patented medications coming onto the Canadian market under the current pricing guidelines of the Patented Medicine Prices Review Board.

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