Why Are Prescription Costs Based On Generic And Non-Generic Brands?

Why are prescription costs based on generic and non-generic brands? Non-generic "name brand" drugs cost more. Your insurance company passes that expense along to you. Generic drugs costs less, bottom line....

Generic drugs costs less, bottom line. Non-generic "name brand" drugs cost more. Your insurance company passes that expense along to you. For example, a generic drug may cost you a $10 co-pay while a name brand drug costs you $35 (check your personal medical insurance policy for your own prescription costs). This is because the insurance company is paying drastically more for that name brand drug (could even be hundreds of dollars) than they do for the generic version of it.


"The cost, to consumers and insurance companies, is far less with generic drugs. If a drug is available in a generic form, this can create competition with other manufacturers, thus lowering the price for everyone," states Cindy J. Holtzman. It's simple supply and demand. The more versions of the same type of drug there are, the less a drug manufacturer can charge for it. If one charges more, another will charge less to gain more business. When a prescription is used by a lot of people, naturally a drug manufacturer will see the opportunity to earn money. Offering a "knock off" of that prescription will provide the people that need that medicine another option to buy. Generics cost less to make thereby the manufacturer can charge less from the consumer and still make a profit. Since a generic medication is just as effective but cheaper, both insurance companies and consumers generally prefer generic drugs. As Ms. Holtzman pointed out, it's really about the cost.




"When drug companies create a drug, there may not be a generic available, so they charge high dollar for it. They have a patent block of time to market it before a generic alternative is allowed to become available. There is a 20 year wait to make a generic from name brand. Unfortunately, many commonly used prescriptions are not available in a Generic form currently," Ms. Holtzman explains.

Name brand prescriptions bare the burden of the cost of drug development. This includes everything from formulating new drugs, testing their uses, effectiveness, and safety, and once FDA approved, also the cost of marketing. Not to mention the cost of all the failed drugs that never make it past testing. It's an exorbitant amount of money! When a company comes up with a successful drug, they will charge what they can in order to recover the costs the company spent in order to create a beneficial medication. That's not to say some companies may price gouge out of greed, but in general it's more about recouping business costs while also trying to make a profit. The 20 year patent that blocks competing drug manufacturers from making a generic is to provide the company that created the drug an opportunity to profit from their investment. If not for that patent, it would take very little time for the market to be flooded with generic counter parts. In which the competition would be siphoning the profits off of the innovator without undertaking the enormous expense of inventing the drug. The innovator would be left without proper compensation leaving no means to invent new drugs. Thus the 20 year patent allows the drug manufacturer that invented the drug to run a successful business.

Generic drugs costs less to manufacture because it is cheaper to copy a successful drug than it is to invent one. While a generic must still pass FDA tests, the drug is the same formula of active ingredients that already passed so the likelihood of failure is small. It's also cheaper to market a generic because the initial introduction to the masses has already been conquered. Overall, generics cost less because it costs drug manufacturers less to produce the medication.

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