What is driving US drug prices higher?

Reining in the high cost of prescription drugs in the United States is one issue both Democrats and Republicans can agree on in an otherwise highly contentious election year. But identifying exactly what is driving drug prices higher is not always straightforward. 

Sticker prices – also known as list prices – can confuse experts trying to put a finger on the actual cost of prescription drugs. Because due to various manufacturer discounts, the amount of money drug companies actually receive on drug sales – the net price – is often lower than the list price.

But new research reveals that even the lower net price has seen some eye-watering increases.

According to a new study published on Tuesday in the Journal of the American Medical Association (JAMA), the net cost of medicine went up three times faster than the general rate of inflation during the past decade.

Produced by researchers with the Center for Pharmaceutical Policy and Prescribing (CP3) at the University of Pittsburgh’s Health Policy Institute, the new analysis is the first such report to detail the net prices for all brand-name drugs in the United States.

“Previously, we were limited to studying list prices, which do not account for manufacturer discounts,” said lead author Inmaculada Hernandez. “List prices are very important, but they are not the full story.”

Hernandez told Al Jazeera that there was a “wide variability across drug classes” but that the findings showed an overall lack of “price regulation over drug prices”.

The study relied on revenue and usage data for 602 medicines, tracking list and net prices from 2007 to 2018.

Because all of the products studied have been on the market for a long time, the paper did not look at the role of biotech innovation.

“These profits are not where R&D is being recouped,” said Hernandez, who added that the cost of multiple sclerosis drugs more than doubled during that period.

On average, while inflation was around 1.5 percent each year, prescription drugs jumped about 4.5 percent. For the decade as a whole, inflation amounted to about 20 percent, while the net price for medicines climbed some 60 percent. 

Inflation-adjusted list prices rose by 159 percent. At the same time, net prices – which include rebates, coupon cards and other manufacturer discounts – went up 60 percent, 3.5 times the rate of inflation.

Although net prices began to level off around 2015, the authors warned that still did not translate to affordability for consumers. Most rebates are given directly to public and private insurance companies and may not affect the amount that patients spend on copays or coinsurance.

“Net prices are not necessarily what patients pay,” Walid Gellad, senior author and director of the CP3, said. “A lot of the discount is not going to the patient.”

The study did not capture the totality of the market, however, because generic drugs and branded drugs sold by private companies were not included.

Regardless, Hernandez conceded that it was “hard to hypothesise about what is going to happen next” in a policy environment where legislators cannot agree on a strategy for keeping price levels down.

The US Senate has been considering legislation that would tack on price-inflation rebates to Medicare that are similar to those already offered with Medicaid.

Hernandez indicated that in the same issue of JAMA, a different article probes how prescription drug shortages – due to the impact of labour disruptions in China from coronavirus – could have a substantial near-term effect on prices.