It's a common belief that rising drug prices are due to the high cost of cutting-edge medications, with manufacturers charging a bundle to make back development expenses for their new products.
But drug companies have also been steadily hiking prices on older brand-name drugs, a new study reports.
Increasing prices for brand-name pills outpaced the nation's overall rate of inflation nearly fivefold between 2005 and 2016, with consumers paying about 9 percent more every year for the same old drugs between 2005 and 2016.
The price of injectable brand-name drugs increased by 15 percent yearly during the same period, researchers found.
"In the brand-name market, prices are increasing really fast and that's almost solely due to inflation in existing products," said lead researcher Inmaculada Hernandez. She's an assistant professor at the University of Pittsburgh School of Pharmacy.
The EpiPen and brand-name insulin products are two prime examples of drugs that have been on the market for a long time, yet have undergone massive price hikes in recent years, Hernandez noted.
The cost of a two-pack EpiPen injector has increased from around $100 in 2007 to between $300 and $600 today. The list price for Lantus brand insulin increased by 49 percent in 2014, even though the product has been on the market for more than a decade.
These sort of increases on older products undermine efforts by the health care industry to control costs, Hernandez said.
Steep and arbitrary price hikes for older drugs "cannot be justified on the basis of more value or better outcomes," since people are paying more for products that provide no additional benefit, Hernandez reasoned.
Price hikes also can cause patients to face hard choices regarding their health. More than one-quarter of people with diabetes have skimped on their insulin shots because of soaring prices, according to a study published in JAMA Internal Medicine last month.
For the latest study, Hernandez and her colleagues assessed the list price of tens of thousands of medications between 2005 and 2016, using a national database. They also took into account how often the drugs are prescribed, to better reflect each one's contribution to overall U.S. health care costs.
To assess the impact of new drugs, researchers sorted the meds based on when they entered the market. Drugs were considered "new" for the first three years they were available; in the case of generics, for the first three years after patent expiration.
Prices have been increasing across the board for all drug categories, researchers found.
For example, generic drug prices have increased by 4.4 percent a year for pills and 7.3 percent annually for injectables.
And the cost of high-tech specialty medications -- the leading public culprit in rising drug costs -- have been rising annually as well, 20.6 percent for pills and 12.5 percent for injectables.
Overall, specialty drug prices have risen 13 times faster than national inflation, and even generic pill prices increased by more than double the rate of inflation. However, the cost increases for generic and specialty drugs have been driven largely by new medications entering the market, the study reported.
New drugs accounted for 71 percent of the increase in specialty pill medications and 52 percent of the increase in injectables, researchers said.
The increase in generics occurs because new generic products tend to cost more, until more manufacturers enter the market and competition drives down prices, Hernandez said.
There's no apparent reason for the rising cost of brand-name drugs, outside of regular price hikes aimed at boosting company profits, researchers concluded.
Very few new blockbuster drugs ever enter the brand-name market; new and expensive medications generally are considered specialty drugs, the researchers said.
"The United States market for prescribed drugs is really a free-for-all market, and I think we've made peace with that, by and large," said Stuart Schweitzer, a professor of health policy and management at the UCLA Fielding School of Public Health.
The Pharmaceutical Research and Manufacturers of America (PhRMA), which represents the drug industry, took issue with the new report.
"This study provides a flawed and inaccurate portrayal of the U.S. marketplace for medicines," said Holly Campbell, the group's deputy vice president of public affairs. She said the wholesale price numbers used in the report failed to "capture rebates or other types of discounts" offered by many pharmaceutical companies.
"On average, 40 percent of the list price of medicines is given as rebates or discounts to insurance companies, the government, pharmacy benefit managers and other entities in the supply chain that often require large rebates in order for a medicine to be covered," Campbell explained.
Unfortunately, "these savings are often not shared with patients whose out-of-pocket costs continue to soar," she added.
Lack of competition
But Hernandez said other forces may be at play to send the cost of older drugs skyward, including a lack of competition.
"In the case of EpiPen or insulins, they are brand names that have been around for more than one decade at least, and still there's not enough competition" to cause prices to stay the same or decrease, she said.
"Sometimes drug prices make headlines, but usually because they are because of very large prices of new drugs. We want to send the message that year-over-year inflation is a very important contributor to rising drug prices in the brand-name market," Hernandez said.
For his part, Schweitzer questioned whether innovation justifies the high prices of new drugs entering the market.
"One argument says the profits have to come from somewhere for innovation, and if you take away those profits then you have less room to innovate," said Schweitzer, who wasn't involved with the study.
"But the other argument is, no, the drug companies are not stupid, they don't choose projects based on random assignment," Schweitzer said. "They rank every R&D dollar that's spent. They're very, very smart people, and they know when they can absorb falling profits and when they had better not absorb falling profits."
"According to that argument, the companies are just fine and we could control drug prices more aggressively than we do," he concluded.
The new study was published Jan. 7 in the journal Health Affairs.
The New England Journal of Medicine has more about value-based health care.
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