Probing Question: Why do name-brand prescription drugs cost more?

Identical in dosage, safety, strength, quality, and performance, generic prescription drugs are chemically equivalent to brand-name prescription drugs. They involve the same risks and impart the same benefits. So why are brand-name prescriptions more costly than their generic counterparts?

cartoon drawing of pills
James Collins

Cheston Berlin, professor of pediatrics and pharmacology at the Penn State College of Medicine, attributes the difference to "innovation costs," specifically research, development, and marketing. "After a new drug is developed, the company must submit it for FDA approval," Berlin explains. "The FDA then grants a patent to the company for up to 20 years. The company uses this time to repay innovation costs. Also, during this time, no other company may produce a bioequivalent product."

Once the patent expires, competitors are free to produce identical drugs under generic names. With no innovation costs to cover, these substitutes can be offered at lower prices.

Dennis Shea, professor of health policy and administration, says consumers may also trace price differences to their insurance providers. "Initially, insurance companies paid equal amounts for all drugs," says Shea. "But this changed with a surge of generic drug developments in the late 1990s. Now, consumers are required to pay an additional amount for name-brand drugs."

Shea says insurance providers identify the least expensive alternative and use that drug as a reference. However, physicians and patients may argue that the best value is not the best drug for everyone. Although brand-name and generic prescription drugs are bioequivalent, Shea explains, inactive ingredients may differ, and these differences may cause side effects.

The solution, suggests Shea, is to contact your physician and pharmacist with questions and concerns. "When you ask your pharmacist to compare generic and brand-name prescriptions and get your doctor's approval, you're more likely to get the best medication at the best price."

Cheston Berlin, M.D., is professor of pediatrics and pharmacology in the College of Medicine. He can be reached at cmb6@psu.edu. Dennis Shea, Ph.D., is professor of health policy and administration in the College of Health and Human Development. He can be reached at dgs4@psu.edu.

Last Updated April 27, 2005