The Real Difference Between Generic and Brand-Name Drugs

When you hear that a generic version of your drug can cost 80% to 85% less than your branded one, you may wonder what the catch is.

According to the Food and Drug Administration, there isn’t one. Many people think that generic drugs are unsafe or less effective than their brand-name counterparts, but the FDA says evidence doesn’t support that claim.

The real difference between generic and brand-name drugs has nothing to do with safety and a lot more to do with business. Here’s what you need to know about generic drugs.

FDA requirements for generics

Before they’re sold in pharmacies, generic drugs must meet certain requirements. “Drug manufacturers must prove to the FDA that a generic performs the same as the corresponding brand-name product,” says Dr. Ali Farrokhroo, vice president of pharmacy services at Alignment Healthcare in Orange, California.

Among other requirements, generics must have the same active ingredient, dosage and route of administration as the brand-name versions, Farrokhroo adds. Inactive ingredients such as dyes, fillers and coatings may be different, so generic drugs often look different from branded versions.

Why generics cost less

By the time a drug receives FDA approval and is commercially available, a pharmaceutical company has likely spent more than $2 billion and a decade developing it, according to the Tufts Center for the Study of Drug Development. That money and time were spent on three phases of clinical trials to prove the drug is safe and effective enough to be sold for a specific condition.

To recoup those costs, the pharmaceutical company is granted patent protection, allowing that company to be the only one to market and sell the drug for up to 20 years.

Once the patent expires, more drugmakers can compete. Generic drugs often cost much less than branded equivalents because their manufacturers didn’t pay for the research. The 80% to 85% difference is an average; some brand-name drugs are more expensive than others.

When you may not want a generic

Sometimes, you’ll want to stick to a brand-name drug because:

• Inactive ingredients sometimes cause generics to be absorbed at a slower or faster rate than the branded drug, causing tolerability problems for some patients.
• You may have an allergic reaction to an inactive ingredient in a generic drug, though you may also have allergies to branded drugs’ inactive ingredients.
• Your insurance may not cover the generic version, only the brand-name drug, and you’d have to pay full price for the generic.

Because generic drugs usually cost less, they are often preferred by insurance companies. If you’re taking a brand-name drug and you switch health plans, the new plan may not cover it. This may also happen if a new generic version of your current drug is approved, and your insurer changes your plan’s formulary.

When you need a brand-name drug for your condition, but your plan covers only a generic equivalent, your doctor may need to submit medical records to the insurer to show you need the branded version. Other plans may require step therapy, in which you first take the generic version to confirm it doesn’t work for you, or has side effects. In that case, only after you do poorly on the generic will your insurer cover the brand-name drug, unless your doctor submits proof of an allergy.

What to do if you want to switch to a generic

If you’re paying a lot for your brand-name drug and want to switch to a generic, it may be easier than making a doctor’s appointment. “In most cases, you may ask your pharmacist to provide you with the new generic without consulting with your prescriber,” Farrokhroo says.

If you’re not sure whether there’s a generic version available for your medication, you can find out before you call or visit your pharmacist by following these steps:

1. Go to the FDA’s online Orange Book.
2. Search for your drug by either the brand name or active ingredient.
3. When you reach the page that shows generic equivalents, note the second column, labeled “TE code.” Only those with a code “AB” can be switched by your pharmacist without your doctor’s approval; if that code is listed, you can call your pharmacist and ask for the generic.
4. If the TE code is anything other than AB, your doctor likely needs to approve the generic. In this case, call your doctor’s office and ask if you can try the generic version of your prescription.

In some cases, doctors will instruct pharmacists to fill only a brand-name drug. If this is the case, you should talk to your doctor directly about why, and whether there are any other options for your condition.

Lacie Glover is a staff writer at NerdWallet, a personal finance website. Email: lacie@nerdwallet.com. Twitter: @LacieWrites.