A study led by researchers from Brigham and Women’s Hospital has found that median launch prices for new drugs have grown 85 times higher compared to prices in 2008 in the United States, resulting in higher pharmaceutical expenditures for consumers.
Median launch prices for new drugs have increased from costing $2,115 in 2008 to $180,000 per year in 2021. From 2018 to 2013, only 9 percent of the newly released drugs were priced at $150,000 a year, whereas drugs released from 2020 to 2021 saw almost half—47 percent—of them marketed to be $150,000 or higher.
“The trend in prices for new drugs outpaces growth in prices for other health care services. Even after drugs are marketed, manufacturers routinely increase prices over time,” wrote the authors.
As manufacturers in the United States are able to set prices freely, authors speculate that this has allowed pharmaceutical launch prices to rise exponentially, with a 20 percent increase every year.
Even after discounting offers through company discounts and rebates, there was still an 11 percent exponential increase; meaning that every year the price change gets higher.
The study examined 548 of 576 (95 percent) drugs first marketed from 2008 to 2021. Overall, 65 percent of the therapeutics were novel molecules, 25 percent were biologics—synthesized biological molecules such as hormones, proteins, and vaccines—with treatments for cancer and rare diseases taking up 22 and 33 percent respectively.
Amongst the different subgroups, the authors observed that drugs for rare diseases and cancer had the highest prices; priced at around $168,000 and $110,000 per year respectively.
Whilst the study authors did not explore the reason behind the drastic increase, a 2020 study published by Duke University on drug prices from 2005 to 2010 argues that the reason behind the price hike is due to Medicare reimbursement of part B pharmaceuticals; implemented in 2006.
The study argued that as Medicare reimburses pharmaceuticals based on its past prices, this unintentionally creates an incentive for manufacturers to set a high launch price so that they would be able to get more from reimbursements.
“[Health care] providers are reimbursed on a drug’s cost, so they may not be sufficiently concerned about drug costs being high,” said David Ridley, one of the co-authors.
However, this means that patients would need to pay a higher amount when charged on co-payments for the total drug expenses as well as increased taxes.
Further, the study found that the phenomenon of setting high launch prices is the most significant for novel drugs based on new molecules, reinforcing findings in the 2022 study.
“Manufacturers of new molecules have more freedom to launch at higher prices because they are less constrained by public expectations of what the price should be,” he said.
The Duke University study suggested that reimbursements should be priced on the actual value of the drug, measured in improvements in quality of life or how long the life expectancy is increased by. The authors predicted that is would induce a fall in drug prices that provide little value as well as a likely reduction in co-payment costs for patients.
Whereas the 2022 Brigham and Women’s study encouraged “the US could stop allowing drug manufacturers to freely set prices” and negotiate prices prior to launch instead, following the system in many European countries.