Generic price hikes expected to continue

The dramatic increase in the price of generic drugs last year is expected to continue for the rest of 2015 and even into next year, according to those who closely monitor the market.

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Financial analysts and other industry watchers stress that the rate of inflation and the number of price hikes will likely be slightly below the nearly 400 increases in 2014 that resulted in overall costs rising more than 6%. A Morgan Stanley report released in January put the generic inflation rate at between 5% and 6% for the next 12 months to 18 months.



The same issues that led to last year’s spike in prices — increased demand, short-term market exclusivity for some new single-source generics and higher manufacturing and raw materials costs — have not gone away, industry watchers said. In addition, increased regulatory obstacles, supplier consolidation and the increasing complexity of generic drug production also are expected to drive up prices going forward.



Some said they expect the ongoing generics inflation could lead retail pharmacies to rethink the way they market these products. A report earlier this year by The Lockton Benefit Group, a provider of employee benefits to companies around the world, predicted that some of the highest-priced generics will begin to disappear from community pharmacies’ low-cost drug lists.



“Some PBMs are even recommending moving certain generics into a higher co-pay tier,” the report said.



While the spike in the price of generics has provided many pharmacies with higher top-line growth, it also has driven down bottom-line profitability and led consumers and plan payers to shy away from some generics.



“Overall increases in the amounts we pay to procure generic drugs ... could have a significant adverse effect on our profitability,” a spokesman for Walgreens Boots Alliance said. “In addition, our gross profit margins would be adversely affected by continued generic inflation to the extent we are not able to offset such cost increases.”



Like other community pharmacies across the country, Walgreens said it is hoping to combat the price hikes through changes in its procurement procedures and revamped contracts with suppliers and payers.