Glossary Term

Brand Name Drug

An FDA-approved drug with an active patent providing its manufacturer exclusivity in production and sales is known as a brand name drug. The drug’s name is chosen by the manufacturer and used instead of the official name given to the drug by the government.

Brand name drugs typically have higher costs because they have no competitors offering the same medication (though there might be alternative medications within the same therapeutic class). The company who owns the patent on a brand name drug is protected from third parties making the same drug during the term of the patent. However, once the patent expires, the medication may be offered as a generic drug by other companies, increasing competition and lowering the price for the medication. The term of a drug patent is 20 years from the filing of the patent, which means that the actual market length of the patent may be less than ten years given the lengthy time it typically takes to complete the process necessary for FDA approval of a new drug.

Since brand name drugs are often more expensive, they are often placed on higher tiers within a health plan formulary. A higher tier is associated with more expensive out-of-pocket costs (e.g. copayments) for the health plan’s enrollee than is the case for drugs on a lower drug tier.

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