What's Driving Cost Growth Among US Drugs? It's Not Novel Therapies, Study Says

The fact that cost growth is driven largely by older products and not by new blockbuster therapies “is particularly important,” write the authors, “because in the current value-based landscape, increasing drug costs attributable to new products can sometimes be justified on the basis of improved outcomes. However, rising costs due to inflation do not reflect improved value for patients.”
Kelly Davio
January 08, 2019
The rising cost of drugs is exerting a significant strain on the US healthcare system, prompting a number of proposed policy solutions—including an international reference pricing system and mandatory price disclosure in direct-to-consumer advertising—from the current administration. Innovative drugs with high list prices, including many specialty drugs, have often been pointed to as the culprits for the increasing cost burden, but new research suggests that price hikes on older drugs are also playing a substantial role in increasing costs.

A study published this week in Health Affairs sought to address the question of how much rising drug costs are linked to inflation in the prices of existing products versus the market entry of new therapies.

The investigators obtained monthly wholesale acquisition costs for all National Drug Codes (NDCs) for all oral and injectable drugs for the years 2008 to 2016. For each year, the investigators categorized drugs as either new or existing products, and as brand-name, specialty, or generic drugs.

Between the study period, the number of NDCs in the sample grew from 11,201 to 24,825 among oral drugs and from 1708 to 3047 for injectable drugs, and the average weighted costs of products increased across the study period among all classes:
  • Among brand-name products, oral drugs saw 9.2% annual increases in price, versus 15.1% annual growth for injectables. Price inflation among existing drugs was responsible for 87.3% and 104.3% of cost growth among oral and injectable drugs, respectively, versus 12.7% and –4.3% for new products. A reduction in the annual contribution of new injectables was driven by the introduction of cheaper influenza vaccines, say the authors.
  • Among specialty drugs, which saw 20.6% and 12.5% average annual increases for oral and injectable therapies, existing drugs were responsible for 28.9% and 47.6% of these increases, respectively, while new drugs contributed 71.1% and 52.4% of the growth in cost. Drugs like sofosbuvir played a significant role in cost growth in the specialty drug category, explain the authors.
  • Among generics, oral drugs grew in cost by 4.4% while injectables grew by 7.3%. Existing oral and injectable products contributed –68.2% and –30.0%, respectively, to growth, while new drugs contributed 168.2% and 130.0%, respectively. New oral and injectable generics tended to be more expensive than those already on the market, the authors write.
The study’s authors concluded that prices increased “considerably faster” than inflation across all drug classes, with the highest increases for oral specialty drugs. Rising costs of brand-name products were driven by inflation of prices in existing products, and rising costs among specialty products were driven by combined new product entry and existing price inflation. Finally, more expensive new generics, increasing average weighted costs.

The fact that growth is driven largely by older products and not by new blockbuster therapies “is particularly important,” write the authors, “because in the current value-based landscape, increasing drug costs attributable to new products can sometimes be justified on the basis of improved outcomes. However, rising costs due to inflation do not reflect improved value for patients.”

Reference
Hernandez I, Good CB, Cutler DM, Gellad WF, Parekh N, Shrank WH. The contribution of new product entry versus existing product inflation in the rising cost of drugs [published online January 7, 2019]. Health Aff (Millwood). doi: 10.1377/hlthaff.2018.05147.

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