It’s no secret that prescription drug prices are increasing, but it’s less clear to what extent rising costs are explained by the advent of newer, better drugs.
A January study from the University of Pittsburgh and the UPMC Center for High-Value Health Care sought to answer that question and found that new drugs entering the market do drive up prices, but drug companies are also hiking prices on older drugs.
The paper, published in the journal Health Affairs, showed that for specialty and generic drugs, new product entry accounted for most of the rising costs, whereas for brand-name drugs, existing products explained most of the cost increases.
“It makes sense to pay more for new drugs because sometimes new drugs are more effective, safer or treat a new disease you didn’t have a treatment for. Sometimes new drugs do bring more value,” said lead author Inmaculada Hernandez, assistant professor of pharmacy and therapeutics in the School of Pharmacy. “But the high year-over-year increases in costs of existing products do not reflect improved value.”
The researchers examined the list price of tens of thousands of drug codes from a national database between 2005 and 2016 and UPMC Health Plan pharmacy claims over the same time period. Drugs were considered “new” for the first three years they were available or, in the case of generics, the first three years after patent expiration. The study did not include over-the-counter medications.
What they saw was that the price of brand-name oral medications increased by about 9 percent annually — nearly five times the rate of general inflation over the same time period — and the price of brand-name injectables increased by 15 percent. In both cases, soaring prices were overwhelmingly attributable to existing drugs.
For instance, the list price for Sanofi’s Lantus brand insulin increased by 49 percent in 2014. Lantus had been on the market for more than a decade.
“These types of insulin have been around for a while,” Hernandez said. “Whereas the original patent for Lantus expired in 2015, dozens of secondary patents prevent competition, and it is this lack of competition that allows manufacturers to keep increasing prices much faster than inflation.”
Specialty drugs, such as medications to treat cystic fibrosis or cardiac disorders, saw steep price increases as well — 21 percent for oral and 13 percent for injectable — but in this case, new drugs were driving up the cost. Likewise, generics rose by 4 percent and 7 percent.
Americans spend about $1,200 a year on life-improving or, in some cases, life-saving drugs, according to a report by the Organization for Economic Co-operation and Development. This is more than any other developed country in the world.
“It’s a shame that the U.S. is one of the most economically advanced countries in the world, but there are a lot of patients who have problems affording their medication,” Hernandez said.
She added that one possible solution to the problem could be setting inflation caps for pharmaceutical products. The team will next attempt to find out the drivers of price inflation by looking at different markets.
“These increases threaten the affordability of pharmaceutical benefits coverage by U.S. public payers and warrant consideration of more potent policies to control drug prices, in particular for government payers,” the study states.