The surprising reason drug prices are on the rise

You are not imagining it: Drug prices really are increasing. New research led by academics at the University of Pittsburgh and published Monday in Health Affairs helps us put some numbers on exactly how much and what kind of drugs are to blame.

Prices for drugs of all types and from all classes (brand-name, specialty, generics/oral or injectable) have been rising faster than inflation over the study period, from 2008 to 2016, according to the researchers’ review of wholesale prices for thousands of drugs.

But the bigger surprise is that brand-name drugs in particular are seeing a counterintuitive trend: Rising prices for brand-name drugs were mostly attributable to existing drugs that were already on the market. Insulin in particular was one notable offender, the study found.

“In the brand-name market, there was inflation of drugs that have been around for a while, that were exactly the same as they were the previous year,” Inmaculada Hernandez, an assistant pharmacy professor at Pitt who led the study, says. “They are the same drugs they used to be. Prices are increasing because the market is bearing it.”

(One acknowledged caveat for their findings: The researchers used wholesale prices for their study, which means they could not account for the rebates and discounts that health plans receive from drug makers. But list prices do set the market, so to speak.)

To get a little more granular: Prices for specialty drugs (often “biologics” produced from living cells to treat conditions) rose the most, followed by brand-name drugs (your classic small-molecule medications), and then generics (the knockoff versions of drugs that have lost their patent protections).

For specialty and generic drugs, price increases went up more as you’d expect. They were driven mostly by new drugs entering the market. In the time period covered by the study, many of the big blockbuster drugs were specialty drugs — and those come with correspondingly large price tags.

That seems to make sense. Specialty drugs are more complex and treat more serious conditions. Brand-name drugs are or were also novel drugs, while the whole point of generic drugs is that they are supposed to bring down costs once a new treatment’s monopoly has expired.

So the bottom line is that we now have a clearer picture of what’s really happening with drug prices: “That’s the main point — how fast drug prices are increasing,” Hernandez told me.

If you’re interested in the specific percentages, this table is handy:

What’s happening with brand-name drugs certainly seems counterintuitive. I asked Hernandez what would explain existing, not new, brand-name drugs driving price increases to this degree.

There seem to be two interrelated problems. First, Hernandez says, “There’s not enough competition. Some of these drugs are protected under patent, but in many cases, they’re not protected by patent.”

But secondly, and perhaps more worryingly, “drugs are increasingly insensitive to competition,” she says. That would certainly track with the study’s findings.

What do we do with this information? That is the million-dollar question. House Democrats are set on doing something in the next two years to address drug prices, yet every proposal comes with tradeoffs. Still, this new data provides us with a much more granular understanding of which drugs are seeing their prices rise — a necessary data point for figuring out a way to fix it.

This story appears in VoxCare, a newsletter from Vox on the latest twists and turns in America’s health care debate. Sign up to get VoxCare in your inbox along with more health care stats and news.

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