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.”
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:
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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