How Much Could Chilean Households Save by Switching to Generic Drugs

In Latin America and the Caribbean, pharmaceutical expenditure ranges from 8.5% (Costa Rica) to 22.1% (Mexico) of total health expenditure. Although governments bear part of this expenditure, in many of the region's countries households assume a significant proportion. In Chile, for example, health spending directly paid by households accounts for 32% of total health spending, and spending on medicines is the main component of out-of-pocket spending, accounting for 40%.

How can this burden be reduced? Substitution towards generic drugs may be one solution.

What Are Generic Drugs?

Generic drugs are versions of the original drug, with the same active ingredients, which are marketed when the patent on the original has expired and the authorities have certified their quality, safety and efficacy.

Generally, generic drugs, and particularly those that are not branded (marketed under the International Nonproprietary Name), are sold at lower prices than their original or generic branded counterparts.

What Is the Savings Potential Through Generic Drugs?

A study by the Inter-American Development Bank estimates how much Chilean households could save if they were to buy non-branded generic drugs instead of their equivalents. On average, branded drugs are 6 times more expensive than unbranded generic products, and can be up to 35 times more expensive. Given that for 29% of the market there is non-branded generic competition and therefore substitution is possible, these price differences imply that the estimated potential annual savings is US$283.2 million.

For Chilean households, these savings represent 0.4% of total household spending, 3.8% of out-of-pocket spending on health and 10.3% of out-of-pocket spending on medicines. This saving would allow households, for example, to pay for about two months of transportation per year. In households with lower levels of education, substitution to generics could reduce outpatient drug spending even further, by 12% to 18%.

Another way to visualize the magnitude of these savings id the following: The US$283.2 million mentioned above would be enough to lift 223,239 Chilean households out of extreme poverty. Moreover, the potential savings could be much greater if unbranded generic versions of all off-patent drugs were marketed in Chile. Indeed, the study found that 62% of the total market value could count on unbranded generic competition, but still does not.

A health system that seeks to move towards Universal Health Coverage must strive to reduce out-of-pocket household spending. One strategy in this direction is to encourage the demand for and supply of non-branded generic drugs, which tend to be much less expensive than their branded alternatives.

Various policies can encourage competition through regulatory and pricing incentives, including physician commitment to prescribing international nonproprietary names, the possibility of substitution to generics at the point of dispensing, and user education and awareness of the benefits of using nonbranded generics.

Learn more strategies and tools for more efficient healthcare spending in our publication Smart Spending for Health: How to Make Each Dollar Count - download it now!

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