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Causes of Rising Prescription Drug Costs

Imagine a world where everyone could get the prescriptions they need at an affordable price. This dream world is far from the reality of our current health care climate, where prices for all drug classes are steadily increasing.

Prescription drug costs rise as a result of price inflation and the introduction of new products, but we wanted to find out how much these factors each contribute to persistent increases. Having an answer to this question could spur the introduction of policy changes that would make prescriptions more affordable in the U.S.

Study overview

We performed a retrospective study using 2005–2016 First Databank pricing data and UPMC Health Plan pharmacy claims to determine how new and existing prescription drugs contribute to rising costs in an outpatient setting. Our study included oral and injectable specialty, brand-name, and generic medications.

Key findings

  • Cost increases outpaced inflation in all drug classes. Oral specialty drugs experienced the greatest increases, while prices for oral generics increased the least.
  • Price inflation drove cost increases for brand-name existing drugs. A combination of new product entry and price inflation contributed to rising costs for specialty drugs (new product entry accounted for a larger proportion of rising costs).
  • Existing oral generics tended to keep down average annual increases in this group. However, new, more expensive generics tended to increase average costs.

Solving this problem

Left unchecked, persistent increases in drug prices will seriously threaten the affordability of prescription benefits. Our hope is that our research will provide needed support for efforts aimed at controlling price inflation.

We invite you to take a look at our article in Health Affairs for more details.