Prescription drug spending rose by $135 billion between 2001 and 2010 to comprise approximately 12 percent of the nation’s overall healthcare outlay. While drug expenditure was one of the fastest growing components of U.S. healthcare spending prior to the early 2000s, generic drugs helped reduce the rate of annual growth. Generic alternatives, which retail for up to 75 percent less than brand-name drugs, may be offered after the manufacturer’s period of market exclusivity and patent expires. By delaying market entry for generic equivalents, brand-name drug manufacturers have a greater incentive to continue research and development investments.

The Drug Price Competition and Patent Term Restoration Act of 1984, or Hatch-Waxman Act, reduced the cost of market entry and the waiting period for generic drugs. Combined with its regulatory framework, tactics like tiered copayments further encouraged providers and consumers to use generic alternatives. Consequently, U.S. generic drug utilization rates increased from 19 percent when enacted to 78 percent today. By 2015, this rate is expected to rise even more as several patents are slated to expire for popular brand-name drugs.

The U.S. Government Accountability Office recently released a report that identified relevant articles estimating cost savings associated with generic drug use in the United States. Approaches varied for each study, with findings summarized in the report to Congress, Drug Pricing: Research on Savings from Generic Drug Use.

Following a structured literature review, GAO found 30 relevant articles of which could be grouped within three main categories:

  1. Those looking at drug cost savings accrued from generic use.
  2. Those estimating potential drug savings through increased generic use.
  3. Those estimating the healthcare cost effects with generic use of certain drug types where questions were raised regarding medical suitability of the generic drug substitutes.

To read or download the full brief, click here (PDF).