From the U.S. Government Accountability Office, www.gao.gov

Transcript for: Potential Savings from Using Generic Drugs

Audio interview by GAO staff with John Dicken, Director, Health Care

Related GAO Work: GAO-12-371R: Drug Pricing: Research on Savings from
Generic Drug Use

Released: March 2012

[ Background Music ]

[ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and
information from the U.S. Government Accountability Office. It's March
2012. In 2010, spending on prescription drugs in the United States
reached $307 billion, approximately 12 percent of all health care
spending that year. Using generic drugs rather than their brand-name
counterparts has the potential to reduce that cost. A group led by John
Dicken, a director in GAO's Health Care team, recently reviewed research
on the savings that can come from using generic drugs. GAO's Jeremy
Cluchey sat down with John to learn more.

[ Jeremy Cluchey: ] How do generic drugs differ from brand-name drugs?

[ John Dicken: ] Well, generic drugs were really intended to be a copy
of a previously approved brand drug, so when a manufacturer develops a
drug, they'll get a patent protection that will last for a number of
years, and so that manufacturer is the sole manufacturer that can sell
that drug. But after the patent expires, then the other manufacturers
can start selling drugs that are identical as far as the active
ingredients that have the effects on each individual, and they need to
be identical in terms of strength and dose and what their intended use
is. And so the Food and Drug Administration will determine that these
generic versions are bioequivalent or have the same effects on humans as
the brand-name drug that was originally sold.

[ Jeremy Cluchey: ] And can you talk a little bit about how the overall
use of generic drugs has changed over time?

[ John Dicken: ] Sure. Really it's important to look back to kind of a
key sentinel of federal law known as the Hatch-Waxman Act that in 1984
gave some incentives, both for manufacturers to develop brand drugs, but
once the patent expired for generics to become available and be approved
more easily and at less cost. And so in 1984, when that act was enacted,
generic drugs only represent about 19 percent of all drugs sold, whereas
today it's about 78 percent, so there's been rapid growth over the last
25, 30 years.

[ Jeremy Cluchey: ] In this report, your team reviewed research on the
estimated savings and reduced drug costs that have come from using
generics. What did you find there?

[ John Dicken: ] The most kind of comprehensive series of reports that
have looked at savings from generic drugs were done by a group called
IMS Health, and they did these studies for the Generic Pharmaceutical
Association, and found that over the 12-year period from 1999 to 2010,
generics have saved about a trillion dollars. As mentioned, the use of
generic drugs has grown, so the amount of savings has also increased
over time so that by 2010, these studies estimated that generic drugs
had saved about $157 billion a year.

[ Jeremy Cluchey: ] Your team also looked ahead in this report,
reviewing studies on the potential to save more through even greater use
of generics down the road. Can you talk about your findings there?

[ John Dicken: ] Right, so these studies looked at whether generics
could be used even more than they are today, and so they assume that if
100 percent of the time when a generic is available, if that generic
drug is used, then there could be even more savings. So, for example,
for the Medicare program, a large federal program for the elderly,
indicated there could be $900 million more savings if generics were
always used, and that's compared to about the $33 billion in savings
that are currently existing by Medicare using generic drugs.

[ Jeremy Cluchey: ] Finally, for taxpayers who are interested in the
implications both for their health and their wallet of using generic
drugs, what's the bottom line of this report?

[ John Dicken: ] Well, certainly there's the potential for savings both
for individuals as well as for their health plans, whether that's
private insurers or federal programs like Medicare/Medicaid. CBO has
estimated that generic drugs save about 75 percent compared to their
brand drug, and many health insurance plans give strong incentives for
consumers to use those drugs. So they may be paying only a few dollars a
month for the drug for the generic version, whereas the brand version
could cost significantly more.

[ Background Music ]

[ Narrator: ] To learn more, visit gao.gov and be sure to tune in to the
next episode of GAO's Watchdog Report for more from the congressional
watchdog, the U.S. Government Accountability Office.