Published October 16, 2018|2 min read
Whether you’re shopping for over-the-counter drugs or filling a prescription, generic medications at the pharmacy are often a fraction of the price of their brand-name counterparts.
It’s tempting to buy the generic version to save some cash, but you might be worried that choosing the cheaper version of a drug means sacrificing quality or effectiveness.
You can breathe easy — the cost of generic vs. brand-name drugs has more to do with the drug market than the medications themselves. So why are they so different in price?
To understand why brand-name drugs cost more, it helps to go back to the cost of developing a drug in the first place. Pharmaceutical companies spend a large amount of money, an average $2.6 billion, to bring a new drug to market.
Drug companies charge so much for their product, in part, to make up for lengthy development times and high costs.
“A drug manufacturer bringing a new drug to market will spend several billion dollars on research, testing and marketing on all the drugs they are developing, whether or not they make it to market,” said Caitlin Hoff, health & safety investigator at ConsumerSafety.org.
Once a medication is approved, the Food & Drug Administration (FDA) allows the pharmaceutical company to sell the drug exclusively for a certain time period, which varies based on the type of drug. This is known as exclusivity, and it helps the company recoup their development costs.
When this time period expires, competitors are allowed to join the market and sell their own generic versions. Since those competitors didn’t spend billions of dollars on development, they can afford to offer their products at much lower prices.
While there may be concerns about the effectiveness of a generic drug, they are usually misplaced. The FDA requires generic medications to have the exact same active ingredients and effectiveness as the brand-name version. The FDA also reviews generic drugs, conducts manufacturing plant inspections and monitors ongoing drug safety levels to ensure these standards are met.
Physical differences between the two drugs are often minor, usually related to appearance or the inactive ingredients in the drug. Hoff said this includes color, shape and packaging of the generic drugs.
The biggest difference between brand-name and generic drugs is cost. Generic manufacturers usually sell their drugs at 80% to 85% less than brand-name versions, according to the FDA.
Doctors often prescribe generic medications because they have the same effectiveness and dosage, and insurance companies prefer them because they’re cheaper. In most cases, buying generic drugs is the best way to save money and get the prescriptions you need. The same rings true for OTC medications.
There are a few times you may need the brand-name version:
Your insurance only covers the brand-name drug (Here's how to find out which drugs are covered under your insurance plan).
You are allergic to an inactive ingredient in the generic version.
You are taking a narrow therapeutic index drug (NTI).
Don’t shy away from asking your doctor or the pharmacist for more information about brand-name vs. generic drugs — and if you are looking for more ways to save at the pharmacy, try these 14 tips for saving at CVS.
Get essential money news & money moves with the Easy Money newsletter.
Free in your inbox each Friday.