The cost of many innovative goods and services declines after they are initially introduced to the market. For instance, early adopters pay dearly for the newest technology, but the prices for consumer electronics decrease rapidly. Genomic sequencing and cloud computing had initial stratospheric prices, but these have since decreased substantially.
But in the United States, drug prices keep going up after initial market introduction. For instance, above is a graph of the price of Gleevec, a drug to treat certain types of leukemias. The price increased from $26,000 annually when launched in 2001 to over $120,000 when a generic became available in 2016. Even then the cost of the brand name drug continued to rise!
Researchers in JAMA Health Forum have demonstrated that it doesn’t have to be this way!
They examined prices of all drugs newly marketed from 2011-2022 in the U.S. (254), Germany (298) and Switzerland (235), and report that in the U.S. prices continue to rise each year after launch, especially for cancer drugs (solid line). In Germany and Switzerland, prices of newly launched oncology and non-cancer drugs decreased over time.
In Germany, pharmaceutical companies can price at their own discretion in the first year after launch but must provide data on effectiveness. Drugs that are found not to have incremental benefit compared to existing drugs are capped at the price of existing drugs, while pharmaceutical companies can negotiate with the national association of health funds for higher rates for drugs with new advantages. The negotiated rate serves as a ceiling price.
In Switzerland, prices of new drugs are established by a federal office based on incremental benefit and benchmarked to prices allowed in similar countries. These prices are reviewed and adjusted every three years. There is no price regulation or insurance coverage for drugs that are not approved to be on the specialty list, so a manufacturer wishing to avoid price regulation can choose to make a medication available for self-pay patients only.
Implications for employers:
The current U.S. system of pharmacy benefit manager rebate negotiation with pharmaceutical companies over prices and rebates is yielding higher launch prices than in other developed countries. It is also yielding incremental price increases over time.
Regulations that require refunds to Medicare for drugs with cost increases greater than inflation could tamp down annual rate increases.
We don’t know if Medicare price negotiations will lead to lower acquisition prices for commercial health insurance plans.
