Before signing up for any new insurance plan, you should familiarize yourself with an often overlooked segment of insurance — your pharmacy benefits plan. But if most pills look the same, how do medications end up costing different prices?
Specialty drugs may be harder to produce, require special handling, or be dispensed from a limited pharmacy network. However, the varying price points of generic drugs have more to do with licensing and competition.
How Does The FDA Regulate Drug Manufacturing?
Let’s start with drug manufacturing. The Federal Drug Administration (FDA) must legally approve all drugs that are prescribed and sold in the US.
When a drug company wants to sell a drug, it must be approved following a lengthy process of clinical testing, trials and research. When the FDA’s team of physicians, statisticians, chemists, pharmacologists and scientists review the data and determine that “the drug’s benefits outweigh its risks”, the drug is approved for sale.
The pharmaceutical company that holds the drug patent has spent money on research and development, and it will need to spend even more money marketing it.
What Is A Single Source Brand Drug?
A drug that is approved for sale by the FDA is known as a “single source brand drug.” Only the company that made this medication holds the patent and they then have the sole right to sell it to consumers. The manufacturer can, and likely will, charge a premium so the drug would be more expensive at this point in time than in the future.
The average drug patent lasts about 20 years and manufacturers can earn staggering profits from a bestselling drug while it’s still on patent.
For this reason, drug companies spend considerable amounts of money advertising their drugs. According to Kantor Media, in 2015 pharmaceutical manufacturers spent $4.5 billion on direct to consumer advertising. The goal was to win over as many consumers as possible before their patent expires. When this happens, the drug is said to have gone off-patent.
This transition is called loss of exclusivity (LOE), since the exclusive right to manufacture the drug has expired, and multiple manufacturers will now be able to create and sell generic versions of the drug.
What Happens When A Brand Drug Goes Off Patent?
A generic version of a drug must, by law, have the same active ingredients as the original brand drug. This is called “therapeutic equivalence”. The brand drug that has gone off patent is now known as the reference listed drug or RLD.
Once a single source brand drug goes off patent, one of two different scenarios may occur:
Scenario 1: Single Source Generic Drugs
In some cases, the FDA grants a single company the exclusive right to manufacture, distribute, market and sell a generic version of a drug. This is known as a “single source generic,” where the manufacturer has the sole right to produce the generic version of that drug for anywhere from six months to one year. The price of the drug will be lower than the brand drug. But, since there’s only one other company selling the single source generic drug, it will not be much cheaper than its branded equivalent.
Scenario 2: Multiple Source Generic Drugs
Several drug companies are allowed to design their own versions of the brand drug. At this point, the drug is known as a multiple source generic because a consumer can get the drug from one of several manufacturers. Because there are several competing brands with essentially the same product in the marketplace, competition causes the prices to drop.
The MONY Code For Brand and Generic Drugs
The “MONY” code is a classification system in the pharmacy benefits space that helps PBMs to distinguish brand drugs from generic drugs and single source drugs from multi source drugs. It refers to the four codes (M, O, N, and Y) in the Multi-Source Indicator system from Medi-Span. Medi-Span is a national, third-party source of drug information for PBMs.
The 4 Multi-Source Indicator Codes:
Three of the codes (M, O, and N) represent brand drugs. The last code (Y) represents generic drugs.
- M: A single-source, co-licensed drug. Although the drug is technically available from more than one labeler (the co-licensed makers), it is still considered a single-source product. Sometimes this is called a “multi-source brand drug,” since it’s produced by multiple manufacturers but does not have a generic version available.
- O: A multi-source, originator drug. This code is used for an originator drug (original brand drug) that now has generic versions available from other manufacturers.
- N: A single-source drug. When a single-source brand drug is only available from one manufacturer (the original brand), and it does not have any generics available, it would use the N code in the MONY system.
- Y: A generic version of a multi-source drug. Multi-source drugs are available from multiple labelers – one would be the original brand drug, and the rest would typically be generic formulations. While generics are usually made by multiple manufacturers, it’s possible to have a “single source generic drug” where only one company is licensed to make a generic version. Either way, a generic drug always uses the Y code.
Overall Pricing Impact of Single Source Generics and Multi Source Generics
Although generic drugs are equivalent to branded drugs in terms of efficacy, safety, usage and pharmacodynamics, their prices may vary dramatically based on the number of manufacturers producing them.
Generic drugs are virtually always cheaper than originator brand drugs, just as non-specialty drugs are generally cheaper than specialty drugs, but how much cheaper will depend upon the number of generic versions available (and the number of manufacturers producing them). The more generics (i.e. drugs that use the Y code in the MONY system) there are to compete with each other, the lower the price will be.
Truveris is a leading digital health company focused on delivering truth and clarity in pharmacy. Truveris’ proprietary technology, coupled with deep pharmacy expertise, helps to build a more efficient market that maximizes choice, accessibility and prescription drug affordability. Our solutions provide the insight and knowledge to help people lead healthier and more productive lives.
