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Rising Drug Prices Linked to Older Products, Not Just Newer, Better Medications
PITTSBURGH (Jan. 7, 2019) – It’s no secret that drug prices are increasing, but to what extent are rising costs explained by the advent of newer, better drugs? A study from the University of Pittsburgh and the UPMC Center for High-Value Health Care 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 January issue of Health Affairs, shows 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, Ph.D., assistant professor at the Pitt 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.
What they saw was that each year the price of brand-name oral medications increased by about 9 percent – 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 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.
“Our results demonstrate that rising drug prices, in particular rising branded drug prices, are largely attributable to manufacturers increasing prices annually for those medications that already are available rather than new drug market entry,” said senior author William Shrank, M.D., M.S.H.S., chief medical officer for the UPMC Insurance Services Division. “This observation supports policy efforts designed to control health care spending by capping price inflation to some reasonable level.”
Additional authors on the study include Chester B. Good, M.D., M.P.H., and Natasha Parekh, M.D., M.S., from the UPMC Health Plan and UPMC Center for High-Value Health Care; Walid Gellad, M.D., M.P.H., from Pitt; and David Cutler, Ph.D., from Harvard.
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About the University of Pittsburgh Schools of the Health Sciences
The University of Pittsburgh Schools of the Health Sciences include the schools of Medicine, Nursing, Dental Medicine, Pharmacy, Health and Rehabilitation Sciences and the Graduate School of Public Health. The schools serve as the academic partner to the UPMC (University of Pittsburgh Medical Center). Together, their combined mission is to train tomorrow’s health care specialists and biomedical scientists, engage in groundbreaking research that will advance understanding of the causes and treatments of disease and participate in the delivery of outstanding patient care. Since 1998, Pitt and its affiliated university faculty have ranked among the top 10 educational institutions in grant support from the National Institutes of Health. For additional information about the Schools of the Health Sciences, please visit www.health.pitt.edu.
About UPMC Insurance Services Division
The UPMC Insurance Services Division is owned by UPMC, a world-renowned health care provider and insurer based in Pittsburgh, Pa. The UPMC Insurance Services Division – which includes UPMC Health Plan, WorkPartners, UPMC for Life, UPMC for You, UPMC for Kids, and Community Care Behavioral Health — offers a full range of group health insurance, Medicare, Special Needs, CHIP, Medical Assistance, behavioral health, employee assistance and workers' compensation products and services to more than 3.4 million members. For more information, visit www.upmchealthplan.com.