New therapeutic competition in a drug class lowers prices

August 31, 2023

Source: Dickson, et al Health Affairs, August, 2023 LINK

Competition theory would predict that when a new drug is approved in a class of drugs already on the market, prices for the existing drugs should go down. However, there is a long history in the US of the prices of existing drugs going up when new (and marginally better) drugs come on the market. Here’s a link to a classic 2015 Neurology article describing older drugs “shadow pricing” newer multiple sclerosis medications. This is a hard area to study, as the actual cost (as opposed to the list price) is often difficult to ascertain in our opaque pricing system, where rebates and discounts are considered proprietary.

Researchers developed an algorithm to estimate net price to the plan sponsor, which is higher than net receipts to the pharmaceutical company as it includes costs of wholesalers as well as pharmacy benefit managers. The researchers do not report any funding by pharmaceutical companies.

They found that costs of 10 of the 12 medications they reviewed were lower than expected after introduction of a competitor brand name medication. Importantly, these drug prices often increased, but increased at a lower rate than would have otherwise been expected. Savings could be overstated since pharmaceutical companies often increase their list price in the years immediately before a generic or a competitor is launched.

Implications for employers:

-        “Me too” brand name drugs could lead to lower prices for existing medications

-        These findings are different than those of previous researchers, so we should be cautious in interpretation

-        It would be nice to see a decrease in price of GLP-1 agonists for weight loss when a second drug enters the market later this year, although drug shortages make this less likely.

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