The United States has some of the lowest prices in the world for most drugs. The U.S. generic drug market is competitive and robust—but its success is not accidental. It is the result of a series of deliberate, well-designed policy interventions.
The 1984 Hatch-Waxman Act allowed generic drug manufacturers to bypass costly safety and efficacy trials for previously approved drugs by demonstrating bioequivalence through Abbreviated New Drug Applications (ANDAs). To spur competition, the Act also granted 180 days of market exclusivity to the first generic filer who challenges a brand-name patent—a mini-monopoly as a reward for initiative. Balancing static efficiency (P=MC) with dynamic efficiency (incentives for innovation) is hard, but Hatch-Waxman mostly got it right.
The Generic Drug User Fee Amendments (GDUFA), modeled after the very successful Prescription Drug User Fee Act (PDUFA), require generic manufacturers to pay user fees to the FDA. These funds allow the Office of Generic Drugs to hire more staff and meet stricter approval timelines. GDUFA dramatically reduced ANDA backlogs and accelerated market entry, especially under GDUFA II.
Generic Substitution Laws allow—or in some states even require—pharmacists to substitute a generic for a more expensive brand-name drug unless the prescriber writes “dispense as written.” This gives generics immediate access to the full market without the need for marketing to doctors or patients. The generic drug market has thus become focused on price as the means of competition. Pharmacists also often earn a bit more on generics due to reimbursement spreads, giving them a financial incentive to substitute. And while pharmacy benefit managers (PBMs) are often criticized, they have also been effective promoters of generics by steering patients toward lower-cost options via formulary design.
The FDA’s Division of Policy Development in the Office of Generic Drug Policy also played an underappreciated but vital role in producing recipes for generics, which has opened up the market to smaller firms. Former FDA commissioner Scott Gottlieb writes:
The division’s core responsibility was drafting, reviewing, and approving the policy guidance documents that defined precisely how generic versions of branded medications could be developed and brought to market. For many generic drugmakers, these documents were indispensable — step-by-step recipes detailing how to replicate complex drugs. Without these clear instructions, numerous generic firms could find themselves locked out of the market entirely…the dramatic increase in the quantity and sophistication of guidance documents issued by the FDA during Trump’s first term was instrumental to his administration’s record-setting approvals of generic drugs and the substantial cost savings enjoyed by patients.
Unfortunately, the Trump administration DOGEd this division—an unforced error that should be reversed. The generic drug market is one of the great policy successes in American healthcare. It works. And it should be strengthened, not undermined.
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