ByTara Haelle
Published September 21, 2023
• 11 min read
Around nine out of 10 prescriptions filled in the United States are for a generic version of a drug rather than the brand name manufactured by the pharmaceutical company that initially developed the drug, according to the U.S. Food and Drug Administration. Yet many people may not know whether the medication they picked up at the pharmacy is generic or brand name, what the difference is, or whether it matters.
“Generic medications have the same active ingredient that the brand name drug has,” says Mike Sevilla, a physician at Family Practice Center of Salem in Ohio. “So generic medications, for the most part, are designed to work the same way as name-brand drugs.”
While generic and brand name drugs should be similarly effective, other differences—especially in cost—exist.
Here’s what you need to know.
What’s the difference?
A brand name drug is manufactured by the pharmaceutical company that developed it and submitted it to the FDA for approval; they own the patent on this chemical compound. A generic drug is one made by other companies after the patent runs out. But the active ingredient—the compound that treats a condition—is the same in both.
“Generic medications are not an exact carbon copy of the name-brand counterpart, but they are very close,” Sevilla says. The main differences involve what inactive ingredients they contain. These substances—including alcohol, gelatin, saccharin, or sugars like galactose or lactose—don’t influence the drug’s therapeutic properties.
They are added to a drug formulation to ensure consistency, to preserve the drug, to transport it more easily, or to add coloring or flavor. Usually, the only reason an inactive ingredient might pose an issue for patients is if they have an allergy, such as someone who needs a drug without gelatin because they have a gelatin allergy.
Generic drugs are also legally required to look different than the brand name to avoid violating trademark laws, so they often are a different size, shape, or color, or even taste different than the brand name. To be marketed as the drug they say they are, however, the FDA requires generics to be “bioequivalent” to the original brand name drug. Bioequivalence means the products are equal in terms of how quickly and how effectively they work.
Why are brand name drugs more expensive?
Generics cost about 80 to 85 percent less than their brand name equivalent. In fact, out of all drug spending in 2022, for example, about four out of five dollars were spent on name-brand prescription medications even though they only made up 9 percent of all prescriptions sold.
It’s not just the cost of the drug itself that’s cheaper either. Insurance companies typically have lower copays for generic drugs since they pay less too. In 2022, for example, patients’ copayments were, on average, about 9 times higher for brand-name medications than for generic alternatives. And data from 2022 found that 92 percent of copays for generic drugs were under $20, while only 53 percent of name brand medications cost less than $20.
The big picture: Americans’ use of generics over brand name drugs saved nearly $2 trillion in healthcare costs between 2009 and 2019.
Patients are also more likely to continue taking generic medications because they are less expensive. A 2019 report from the Association for Accessible Medicines — the most recent available looking at this measure — found that patients taking brand name drugs were more than three times more likely to stop picking up their medications than patients taking generics.
How long before a generic drug becomes available?
Drug patents last 20 years, but the clock starts ticking as soon as the company develops the therapeutic compound and begins testing it, so much of that time is eaten up by clinical trials before the drug gets FDA approval and enters the market.
Only the manufacturer can sell the active ingredient in the drug while the patent is in effect, explains Stefanie Ferreri, a professor of pharmacy at the University of North Carolina in Chapel Hill. “The patent allows the company to recoup the costs of research and discovery for the new active ingredient.”
In practical terms then, drug patents last between about seven and 12 years, says Ge Bai, a professor of accounting and health policy at Johns Hopkins University in Baltimore. But plenty of loopholes help companies extend their patents.
Drug companies can—and often do—submit the drug to be approved to treat other medical conditions, each of which can extend the patent another seven to 12 years, Bai says. “That’s why many drugs have been under protection for many years.”
Companies can also tweak a drug to extend its patent. One example occurred in 2010 when Purdue Pharma made the painkiller OxyContin harder to break, so it was more difficult to misuse. The change enabled the company to essentially extend its patent—which it actually did 13 times for OxyContin.
Even after the patent truly expires, Bai says, pharmaceutical companies may engage in “pay to play,” or “pay to delay,” where they pay companies not to produce generic drugs so they can continue selling the more expensive brand name drug exclusively.
Companies may also sell their brand name drug as a generic or give another company permission to sell their brand name as a generic, called authorized generics. The FDA lists all generic medications, but not authorized generics, in a resource called the Orange Book.
Which is more effective?
While many patients and doctors believe there are differences in effectiveness, that’s a myth, Ferreri says.
Study after study has compared the safety and effectiveness of generic and brand name drugs and repeatedly found no differences. One large study comparing the effectiveness of multiple types of generic and name-brand medications among more than 1.3 million people who switched from one to the other found that outcomes were essentially the same between the two for most drugs.
While variability can exist between different batches of generic drugs, variability can also exist between batches of brand name drugs, and the FDA regulates how much variability is allowed to exist. Once a generic enters the market, the FDA continues to monitor safety and effectiveness through the Therapeutic Inequivalence Action Coordinating Committee, which reviews reports of treatment failures to see if a drug needs to be pulled from the market.
A study of bioequivalence over a 12-year period found that the body’s absorption of name brand versus generic drugs only differed by about 3.5 percent.
But sometimes that small percent may make a difference to certain subgroups of patients. A systematic review of cardiovascular drugs found a slightly higher risk of hospital visits among patients taking generics, though the authors cautiously noted there wasn’t enough evidence to draw firm conclusions since they lacked personal data about the patients, such as their socioeconomic status, race/ethnicity, or geography.
Differences in how the drug is delivered could matter too, even if the active ingredient is otherwise identical. That was the case for some the extended-release medications for attention deficit hyperactivity disorder (ADHD). One small study found differences in children’s symptoms when they took an extended release generic version of methylphenidate compared to a brand name drug, which used a different method than the generic to gradually release the drug’s active ingredient.
Some research has also found an increase in doctor visits, hospitalizations, or “breakthrough seizures” when patients with epilepsy switch from a brand name drug to a generic—but then other research has found patients with epilepsy actually had fewer seizures on generic drugs than on the brand name ones.
“I have many patients in my practice who have told me that the generic medication does not work as well as the brand name,” Sevilla says, so he keeps those patients on the brand name drug even if a generic is available.
Can patients choose?
Yes, and it’s worth finding out your state laws on this question. Some states mandate that pharmacists use generic drugs as the default choice unless the patient overrules it, while other states require pharmacists either to get patients’ consent or to notify patients before substituting a generic.
Patient or provider preferences are among the biggest reasons patients receive brand name drugs when generics are available. A patient may opt for the brand name because they experienced more side effects from a generic product, or they may perceive their medication works less well after switching to a generic.
“Some patients have a strong preference, especially when the patients know for sure that they respond better to the branded drug,” Bai says. “If that’s true, then the patient definitely has the autonomy to tell the physician.” A physician can then specify that the patient only receive the name brand drug by writing “Dispense As Written,” or “DAW” on the prescription so the pharmacist knows to dispense the name brand version, Sevilla says.
Whatever the reasons, though, brand name preferences are costly. Bai analyzed 169 million Medicare part D prescription drug claims for 224 different drugs that were available as a generic and brand name in 2017. Most of the drugs dispensed (95 percent) were generic, but for the remaining 5 percent, patients received the brand name drug because of their request 13.5 percent of the time and because of their prescriber’s request 17 percent of the time. If those patients had received the generic instead, they would have saved $270 million in out-of-pocket costs, and Medicare would have saved $1.67 billion.
The top 10 drugs most frequently requested as a brand name were also among the most expensive brand name drugs, particularly for medications where the physician requested the brand name. Those drugs cost anywhere from $306 to $14,671; brand name drugs requested by patients ranged from $122 to $517.
Pharmaceutical companies spend billions every year in direct marketing to physicians, and plenty of evidence has shown that marketing influences doctors’ prescribing habits.
Why do some insurance companies only cover generic drugs?
One word: cost. “Brand name medications cost patients and insurance companies a lot of money,” Ferreri says, so they prefer that patients use generics once they become available.
A patient can still demand to receive the brand name drug, but their insurance may not cover it, or cover it in full, instead charging a higher copayment. Providers can appeal a company’s decision not to cover a drug, but it’s tricky, Sevilla says.
“You will definitely need to work with your family physician on this because documentation will likely need to be completed to show the insurance company why the brand name medicine is better for you,” Sevilla says. “However, the ultimate decision on coverage will be with your insurance company.”
How is the Biden administration trying to lower the cost of 10 brand name drugs?
The Biden-Harris Administration recently released a list of 10 medications for which Medicare can negotiate prices with pharmaceutical companies. All are brand name drugs, which is why they cost so much to begin with.
The intention is to lower the prices Medicare pays for all these drugs, starting with these 10. Prescription drug pricing is fairly unregulated in the U.S., with companies setting almost any price they want. With generics, competition keeps prices low, but brand name drugs don’t have that competition, which is exactly what the current administration is attempting to address.
“The negotiations will hopefully allow more competitive pricing so the reduced cost can be passed onto patients,” Ferreri says. “Medicare drug price negotiation for brand name medications will result in lower out-of-pocket costs for seniors and will save money for American taxpayers.”
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