January 22, 2019

The 2 big reasons why Rx drug prices keep rising

Daily Briefing

    Prescription drug costs in the United States continue to rise each year, and while there's been some debate as to what is driving those increases, a new study suggests there are two key factors that influence the market in different ways: price increases for existing drugs and new drugs entering the market.

    Learn 5 ways to control the flow of drug expenditures

    Study details

    For the study, which was published Jan. 7 in Health Affairs, researchers sought to determine the extent to which growing drug costs are driven by the inflation of existing drugs' prices versus the entry of new treatments in the U.S. market. The researchers quantified the extent to which existing and new drugs contributed to rising drug costs by examining data on oral and injectable drugs used in outpatient settings from 2008 to 2016.

    The researchers compared data from the First Databank, which collects information on prescription drug sales, on more than 27,000 prescription drugs with claims data from the University of Pittsburgh Medical Center's health plan, which the researchers said provides a sample reflective of the U.S. population. The researchers organized the data into brand-name, existing, generic, new, and specialty categories. The researchers based their study on prescription drug list prices, and did not take into account discounts or rebates given to insurers.

    Findings

    Based on the data, the researchers found from 2008 to 2016 the average costs of injectable and oral brand-name drugs rose annually by 15.1% and 9.2%, respectively. The researchers determine that costs for those drugs were largely driven by prescription drug price increases.

    Immaculata Hernandez, the study's lead author and an assistant professor of pharmacy at the University of Pittsburgh, said, "The main takeaway of our study should be that increases in prices of brand-name drugs were largely driven by year-over-year price increases of drugs that were already in the market."

    However, Hernandez said while brand-name drugs comprise an average of 44% of total prescription drug spending, that share is decreasing as drugmakers shift their focus toward the development of high-cost specialty treatments. The researchers found costs for specialty and generic treatments from 2008 to 2016 were largely driven by the entry the new innovative drugs.

    For example, the researchers said new drugs entering the market largely drove the:

    • 20.6% annual increase in specialty drug costs for oral treatments from 2008 to 2016;
    • 12.5% annual increase in specialty drug costs for injectable treatments from 2008 to 2016;
    • 7.3% annual increase in generic drug costs for injectable treatments from 2008 to 2016; and
    • 4.4% annual increase in generic drug costs for oral treatments from 2008 to 2016.

    Hernandez said the increase in generic drug costs can be attributed to the market entry of high-cost generic versions of blockbuster drugs. Hernandez explained that the expiration of patents for certain blockbuster drugs from 2008 to 2016 allowed high-cost generics to enter the U.S. market, which drove an increase in the costs of generics drugs overall. Hernandez noted that generic drugmakers initially set the prices of generic blockbuster drugs very closely to the prices of their brand-name counterparts.

    Hernandez said, "[I]t takes some time to file generic applications and therefore, in the first years after a patent expiration, there's less competition in the market," which means prices do not fall immediately (Kodjak, "Shots," NPR, 1/7; Hernandez et al., Health Affairs, January 2019; Baker, "Vitals," Axios, 1/8).

    Learn 5 ways to control the flow of drug expenditures

    Prescription drug expenditures are the fastest growing component of health care spending. And while reducing unwarranted prescribing variation is the single biggest improvement opportunity, there are several other near-term chances to reduce spending and grow revenues.

    Download Now

    Learn 5 ways to control the flow of drug expenditures

    Prescription drug expenditures are the fastest growing component of health care spending. And while reducing unwarranted prescribing variation is the single biggest improvement opportunity, there are several other near-term chances to reduce spending and grow revenues.

    Download Now

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