HC Statistics Pharmaceuticals

Are new brand name drugs the cause of rising drug prices?

According to a recent study in Health Affairs by Hernandez et al. (2019), the answer is ‘no’. The authors use pricing data from First Databank and pharmacy claims from UPMC Health Plan between 2008-2016 to track trends in drug prices over time. They found that the costs of oral brand name drugs increased 9.2% per year and the cost of injectable brand name drugs increased by 15.1% per year. Note that the authors did not account for price decreases from generic entry after brand patent expiration nor did they measure any changes in drug rebates. Keeping these limitations in mind, the authors found that:

Across the study period, 87.3 percent of the annual increases in average weighted costs of brand-name drugs was attributable to existing drugs and 12.7 percent to new drug products

Similar results were found for injectable drugs as well with the exception of for the 2010-11 time period. The story differs however, for specialty drugs:

Costs of oral specialty drugs showed the largest annual increases, 71.1 percent of which were due to market entry of new drug products and 28.9 percent to existing
drug price inflation…52.4 percent of the increases in costs of injectable specialty medications were due to the entry of new drugs and 47.6 percent to existing drug price inflation.

The authors also examine how their results compare to the consumer price index for prescription drugs.

However, our estimates for the annual changes in average costs are considerably higher than those reported by the Consumer Price Index (CPI) for prescription drugs, which likely reflects the different methods used in the calculation of these estimates. Because inclusion in the basket of drugs measured by the CPI is dependent on popularity, new drugs are less likely to be included in the CPI. Moreover, when new products are introduced into the basket, their prices are not compared to those of existing products.

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