Generics have long offered a safe and inexpensive alternative to many brand-name drugs. Using average national retail price data from IMS Health?s National Prescription Audit Plus^TM, we calculate the per-day drug costs for several different hypothetical patients. We show that the drug costs per day can fall by 14 to16 percent if patients use generics instead of branded drugs, depending on their medical needs. Patients whose needs can be fully satisfied with generics could enjoy reductions of 52 percent in the daily costs of their medications.

For this analysis we use the average national retail price of drugs in brick-and-mortar pharmacies (i.e. chain, independent and foodstore pharmacies, excluding internet, mail order and long-term care pharmacies), a measure that averages pharmacies? revenues from uninsured customers, insured customers, and Medicaid beneficiaries alike. This measure of average national retail price would generally be lower than the retail prices paid by the uninsured. Our use of this measure implies that the savings are interpretable as total cost savings?including to Medicaid and insurance companies?and not necessarily out-of-pocket savings to patients.

We examine six hypothetical patients, and calculate two costs for each patient. The first cost estimate is for the case where all drugs are branded products. The second cost estimate is for the case where the patient buys generic versions if they are available. The six hypothetical patients include one who is prescribed only off-patent products, two who are prescribed only on-patent products, and three that are prescribed a mix of both.

Table 1 below lists the specific drugs and strengths. Using dosing information also presented below, we calculate average daily drug costs from prescription price data for the first quarter of 2004, taken from IMS?s NPA Plus^TM data on brick-and-mortar retail pharmacies. For example, the average price of a 5 mg pill of Norvasc is $1.62, so that the average daily drug costs (including costs to all third party payers) for this daily dose of Norvasc would be $1.62.

This analysis includes several caveats. First, these hypothetical patients are chosen to be illustrative and thus may not be fully representative of the medical needs of a given individual or population. Second, generic prices available to the average consumer may be significantly lower than the median prices reported here. While the median prices are less influenced by outliers than arithmetic means, averages weighted by volume may be a better measure of the price that the typical consumer pays. Weighted averages would give greater importance to manufacturers with high sales volumes relative to smaller manufacturers. Since the low-price manufacturers are likely to sell larger volumes of drugs, the weighted average price may be less than the median price reported here. Finally, savings from generics will increase as more patents expire. For example, FDA approved a generic competitor to Paxil at the end of the period when these price data were collected, so patient #2 may enjoy some savings in the future.

The maximum savings occur when the most generics are prescribed (Scenario 1), and no savings can occur when only on-patent products are prescribed (Scenarios 2 and 3). This can occur when all drugs available with the desired active ingredient in a given dosage form are patented. However, even when generic drugs make up only a portion of the drugs prescribed, savings of 14-16 percent can be realized (Scenarios 3-6).

Table 1: Potential Savings From Generic Drugs

Consumer Education: Generic Drugs