Net Drug Price Hikes Easily Outpace Rate of Inflation

Net drug prices began leveling off in 2015, but the researchers said that doesn't mean that drugs are affordable for many consumers.

The net cost of prescription drugs — defined as sticker price minus manufacturer discounts — grew more than three times faster than the rate of inflation over the past decade, according to new research published this week in JAMA.

The research, conducted by the Center for Pharmaceutical Policy and Prescribing at the University of Pittsburgh's Health Policy Institute, is the first analysis of net drug cost trends for all brand-name drugs in the United States.

"Previously, we were limited to studying list prices, which do not account for manufacturer discounts. List prices are very important, but they are not the full story," said study lead author Inmaculada Hernandez, assistant professor of pharmacy at Pitt. "This is the first time we've been able to account for discounts and report trends in net prices for most brand name drugs in the U.S." 

The researchers used revenue and usage data for 602 brand-name drugs to track list and net prices from 2007 to 2018. They found that inflation-adjusted list prices increased by 159%, while net prices, which account for rising manufacturer discounts, including rebates, coupon cards and 340B discounts, increased by 60%, which is 3.5 times the rate of general inflation.

Net drug prices began leveling off in 2015, but the researchers said doesn't mean that the drugs are affordable for many consumers.

"Net prices are not necessarily what patients pay," said senior author Walid Gellad, MD, associate professor of medicine and health policy at Pitt and director of the CP3. "A lot of the discount is not going to the patient." 

The lion's share of the discounts is made up by rebates that are paid directly to insurers. In addition, the rebates have little affect on the price consumers pay through copays, which are based on list price, not net price.

Depending on the drug, the gap between list and net prices is either widening for drugs such as insulin and TNF inhibitors, or rising at the same level, which is what's happening with cancer drugs. Multiple sclerosis drug net prices more than doubled over the past decade in inflation-adjusted dollars, even after discounts were applied. 

"We're seeing a lot of discussion that net prices have stabilized over the last few years, and that does appear to be the case," said Gellad. "But the stabilization of net price comes on top of large increases over the last decade, many times faster than inflation, for products that have not changed over this time period. In addition, this net price is an average, with substantial variability across payers and drugs." 

Medicaid enjoys much larger discounts than for other payers, reflecting the mandatory Medicaid rebate based on price increases over inflation. Discounts for other payers are based on negotiations.    

Hernandez disclosed fees paid to her personally by Pfizer, for services unrelated to the scope of this work.