Brand Loyalty, Generic Entry and Price Competition in Pharmaceuticals in the Quarter Century after the 1984 Waxman-Hatch Legislation

Abstract

We examine market share and price trends in the quarter century since the 1984 Waxman-Hatch legislation. The generic share of US retail prescriptions has grown from 18.6% in 1984 to 74.5% in 2009, with a notable acceleration in recent years. Whereas in 1994 the generic price index fell from 100 to 65 in the 24 months following initial generic entry, in 2009 the comparable price index was 28. For the prescription drugs most commonly used by beneficiaries in Medicare Part D, rather than increasing by 25–28% as has been reported by the American Association of Retired Persons (focusing entirely on brand prices), we find that once one incorporates substitution to lower priced generics following patent expiration, average price per prescription fell by 21.3% from 2006–09. Finally, we find that the weighted mean reduction in pharmaceutical daily treatment cost across nine therapeutic areas equaled 35.1% at 24 months post-generic entry.