Schulman, colleagues address spiraling generic drug costs

October 29, 2015 – The DCRI’s Kevin Schulman, MD, and colleagues discussed possible solutions to the volatility of the market in a recent JAMA editorial.

Earlier this year, a decades-old drug used to combat a deadly parasitic infection made headlines across the country when its price shot up to $750 a tablet from $13.50. The price hike prompted outrage among consumers and calls for tighter regulation from some politicians.

The recent controversy is only the most notable shift in the generic drug market, according to a new editorial written by the DCRI’s Kevin Schulman, MD; Brown University’s Clay P.Wiske, MPhil, MBA; and Harvard Business School’s Oluwatobi A. Ogbechie, MD, MBA. The editorial appears in the online edition of JAMA.

Drug shortages and price spikes have affected the generic drug market for several years now, Schulman and his colleagues write. There are two reasons for this volatility. First, there are significant financial and logistical barriers to entering the market; and secondly, there are barriers to substituting other products for a particular generic drug molecule.

The authors suggest three possible strategies for stabilizing the generic drug market. One is restricting the manufacture of certain drugs to a limited number of manufacturers, which would bring greater transparency to the market, thereby attracting more manufacturers to remain as suppliers.

Another option is to encourage long-term contracts from drug wholesalers. Manufacturers would then have an added incentive to enter and remain in the market for a specific generic drug, thereby stabilizing the drug’s demand over time.

Finally, the drugs could be traded on an open market, much like a futures market. The creation of such a market could help manufacturers predict the demand for products, serve a similar function as long-term contracts with distributors, and create greater transparency about drug prices.

UPDATE 11/11/15: Schulman’s article was also mentioned in a recent New York Times opinion column.