Why Are Insurers Charging So Much for Generic Drugs?

Prescription drug costs have been a hot topic in recent years, and for good reason. Many people rely on medications to maintain their health, and the rising cost of prescription drugs can be a significant financial burden. While generic drugs are often considered more affordable, some may be surprised that even these medications can come with hefty price tags.

The Promise of Generic Drugs

Gleevec’s cancer drug went generic in 2016 and can be bought today for as little as $55 a month. But many patients’ insurance plans are paying more than 100 times that. CVS Health and Cigna can charge $6,600 monthly for Gleevec prescriptions, a Wall Street Journal analysis of pricing data found. They can do that because they set the prices with pharmacies they sometimes own.

Across a selection of these so-called specialty generic drugs, Cigna and CVS’s prices were at least 24 times higher on average than roughly what the medicines’ manufacturers charge.

Generic drugs are often touted as a cost-effective alternative to brand-name medications. When a pharmaceutical company’s patent on a brand-name drug expires, other manufacturers can produce generic versions. These generics are typically much cheaper because they don’t carry the same research and development costs as the original drug. In theory, this should lead to lower prices and greater accessibility for patients.

However, in practice, the cost of some generic drugs has steadily risen, and insurers are not immune to this trend. Several factors contribute to the rising prices of generic medications:

One of the main reasons for the high cost of some generic drugs is the lack of competition in the market. Sometimes, a single manufacturer may be the sole producer of a particular generic drug, allowing them to set prices at will. With little or no competition, manufacturers have less incentive to lower prices.

Over the years, the pharmaceutical industry has seen significant consolidation, with fewer companies controlling a larger market share. This concentration of power can limit competition and contribute to higher drug prices, including generics.