Drug Price Trends

By March 12, 2020 Commentary

Continuing with our reporting on a number of articles relating to prescription drugs carried in the current issue of the Journal of the American Medical Association, one study related to drug prices and their tendency to get higher over time.   (JAMA Article)    The authors used data from 2007 to 2018 for branded products from publicly-held drug manufacturers.  They looked at list prices, but more importantly tried to ascertain net price changes after various kinds of discounts offered by the manufacturer, which may include rebates to payers or PBMs, coupon cards, 340B discounts, prompt pay discounts, return provisions, etc.  Branded products from public companies account for about 90% of all US branded drug sales.  List and net prices were adjusted over time by the CPI.  602 products were included in the final analysis.  Across the study period, list prices increased by 159% or 9.1% per year.  That might be a little faster than inflation, oh wait, that is actually after inflation is accounted for!  Net prices increased by 60% or 4.5% per year.  From 2012 to 2014, net prices increased relatively rapidly, but they have been more stable since 2015, reflecting the likelihood that list prices are being raised just enough to cover additional discounts.  Across the entire study period, 62% of the increase in list prices was offset by increases in discounts.

Medicaid discounts increased from 40% in 2007 to 76% in 2018.  For other payers the discount went from 23% of list price to 51%.  Multiple sclerosis drugs had the greatest increase in list prices, 18.3% per year, and net prices, 10.2% per year.  Insulin prices increased 262% over the study period, but much of that was offset by discounts, although the net price rise was still 4.2% per year.  Another interesting example is anti-neoplastic agents, which had the lowest list price rise at 4.4% per year, but also had the lowest discounts so that the net price growth was still 2.9% per year.  All of the data in the study strongly suggests that the drug companies are targeting a net price and some net price growth, and that, depending on the discounting strategy being used, list prices just are changed to accommodate the level of discounting.  A very important fact to remember is that the drug companies set initial branded drug prices very high, so any price increase is just raising an already exorbitant price.  And contrary to behavior of many products, the drug companies give purchasers no benefit of expected cost reductions in making the drugs, reductions that should come from volume and from efficiencies gained from manufacturing experience.  Instead they just try to make even more profits, so they deserve all the abuse they get.  And consumers really get hammered, because their cost-sharing is usually calculated off of list prices and they get no benefit from rebates or other discounts.

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