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What’s behind drug price spikes – and what can be done?

Posted 05 May 2021 | By Jeff Craven 

What’s behind drug price spikes – and what can be done?

Two newly published studies have highlighted the rising cost of brand-name and generic drugs, looking at why generic price spikes happen and how drug price hikes affect insured patients.
In an analysis published in Health Affairs, Aayan N. Patel, a researcher with the Division of Pharmacoepidemiology and Pharmacoeconomics, Department of Medicine, Brigham and Women’s Hospital in Boston, and colleagues said that although there have been fewer spikes in drug prices between 2014 and 2017, “price spikes remain common among injectable drugs, drugs with three or fewer manufacturers, and drugs facing shortages.” About 1 in 5 generic drugs have doubled in price during that time, representing approximately $1.5 billion in excess Medicaid spending, they noted.
Using Medicaid State Drug Utilization Data, Patel and colleagues at the Program on Regulation, Therapeutics, And Law (PORTAL) research group at Harvard Medical School and Brigham & Women’s Hospital evaluated the drug prices and price spikes of 11,390 generic drugs, which consisted of 2,899 different products. They found generic drugs declined in price annually overall from 8.0% (interquartile range, 16.4 to 1.1%) in the first quarter of 2013 to a decrease of 18.1% (IQR, 32.0 to 6.7%) in the second quarter of 2018, while the top 5% of drugs increased in price by 135% annually in the first quarter of 2013, 149% in the first quarter of 2015, and decreased 38% in the second quarter of 2018. Among the top 1% of drugs evaluated, there was a decrease from 932% in the first quarter of 2013 to 316% in the second quarter of 2018. Regarding price spikes, 7.8% of drugs evaluated in 2014 had a price spike compared with 5.8% of drugs in 2017.
The authors attributed price spikes to three potential causes: the number of generic manufacturers, the route of administration, and drug shortages. While policies over the last decade have sought to increase competition among manufacturers of generic drugs, “almost a third of generic drugs were still made by a single manufacturer” in 2017, they said. Additionally, “a surprising number of price spikes occurred among drugs with eight or more manufacturers, suggesting that increased competition alone may be insufficient to control price.”
The most common generic drugs associated with price spikes were injectables, which Patel and colleagues said could be due to the technical challenge of manufacturing these drugs or the clinic setting where they are administered having “different methods of payment and distribution than drugs dispensed by retail pharmacies.”
Potential solutions to the problem of price spikes include targeting drug shortages—which the authors acknowledged have been linked to price spikes—and initiatives like the Medicaid Drug Rebate Program, which “result in substantial savings to the federal government.” However, Patel and colleagues noted this solution does not address the increase in spending and out-of-pocket expenses for Medicare and commercially insured patients generic drug price spikes create.
In a study published in JAMA Network Open, Benjamin N. Rome, MD, of the Division of Pharmacoepidemiology and Pharmacoeconomics of Harvard Medical School and Brigham & Women’s Hospital in Boston, and colleagues examined increases in price for brand name drugs and how they impacted patients with commercial insurance.
The researchers evaluated de-identified patient out-of-pocket spending data from drug pricing analytics firm SSR Health across 79 drugs that saw a net price increase between 2005 and 2019. During that time, they found a median list price increase of 16.7% (IQR, 13.6 to 21.1%), a median net price increase of 5.4% (IQR, -3.9 to 11.7%) and a 3.5% median increase (IQR, 1.4 to 9.1%) in out-of-pocket spending.
Changes in list prices and changes in net prices were significantly correlated (P = .002), but there was no significant correlation between list price changes or net price changes and out-of-pocket spending. However, there was a median increase of 15.0% for out-of-pocket spending among 53.7% of patients who paid their drug deductible or coinsurance, and within this group, there a moderate correlation between out-of-pocket spending and list price changes (P = .001).
“These results show that exorbitant list prices set by drug manufacturers do influence how much patients pay for drugs,” Dr. Rome stated in a press release. “Insurers are increasingly using deductibles and coinsurance to shift high drug prices to patients, but this exposes patients to the unregulated prices set by drug manufacturers.”
In addition, the results suggest that “increasing rebates offered by manufacturers to partially offset list price hikes are not being directly passed on to patients, even if they limit increases to total drug spending,” Rome and colleagues wrote in their study.
The authors said policy makers could protect patients from increased out-of-pocket spending by considering capping list price increases each year, and penalizing manufacturers that raise prices above inflation for Medicare Part D beneficiaries—which already occurs under Medicaid—as well as addressing “the increasing gap between list and net prices by eliminating confidential manufacturer rebates to insurers and pharmacy benefit managers or mandating that such rebates be passed directly to patients at the point of sale.”
“Some private insurers have already begun implementing programs to pass rebates on directly to patients. However, limiting confidential rebates or requiring increased transparency could undermine the bargaining power of large purchasers, leading to an overall increase in drug prices and spending,” they wrote. “Thus, a ban on rebates might reduce out-of-pocket spending by patients who use certain high-cost medications but lead to higher premiums among all patients.”
Health Affairs Patel et al.
JAMA Network Open Rome et al.


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