The question on everyone’s mind: What is going on with midyear drug price increases?
Analysts – whether drug pricing nerds like ourselves (and you too if you’re reading this) or analysts at big financial firms – often rely upon past performance as a key metric when studying data. We do this at 46brooklyn even though we know deep down in our heart of hearts that “past performance is no guarantee of future results.” In fact, this axiom has been studied in the financial sector, and proven true, just in case you wanted to check. Case in point, for us at least, is our work in trending brand name drug WAC price increases (aka “list prices”) over time. The first time we wrote about brand name price increases, we built a dashboard in 2019, which showed that brand drug price increases were trending down in both size and frequency. And then, just after re-launching our Brand Drug List Price Change Box Score at the end of 2020, we have a year like 2021, which is breaking any expectations we may have had based upon studying brand pricing trends over the last decade.
As we have already reported on, the first half of 2021 has had more brand drug list price increases than were observed in all of 2020 and is reversing the downward trend in brand price increase frequency we have observed over the last decade. So even though we know it might not tell us a whole lot about what is actually going on with prescription drug spending due to the massively opaque system of discounting and rebating (note: net prices have actually been declining despite list price growth), we couldn’t help ourselves but check in on how midyear price increases were coming along, because, at least as we’ve historically written about, brand drug price increases tend to re-appear in greater frequency in July. While we prefer the context and nuance we provide within our dashboard (as well as the fact that we track decreases as well), GoodRx has also been tracking brand drug price increases as well if you’d like another external resource (please don’t just take our word for it).
Brand drug list price increases through July 10th
If you navigate over to our updated brand drug box score, you will see that in July 2021, there have been 78 price increases through July 10th; a number which is nearly equal to the full amount of July price increases taken over the last three years in July (73 in 2018, 78 in 2019, and 76 in 2020):
Figure 1
Source: 46brooklyn Research, derived from Elsevier Gold Standard Drug Database (GSDD) - Box Score screenshot taken on 7/10/2021.
However, what is hidden in this view is that we are already on pace to “outperform” the prior two years in terms of the number of brand drug list price increases in July. As shown in Figure 2, when we dig deeper into the data that supports our brand box score and we control for date, we see that we have already experienced 32% more brand drug list price increases through the first seven days in July 2021 than compared to the first seven days in 2020 (78 vs. 59) and 11% more than through the same timeframe in July 2019 (78 vs. 70):
Figure 2
Source: 46brooklyn Research, derived from Elsevier Gold Standard Drug Database (GSDD) on 7/10/2021
Digging a little deeper, the 78 products that have taken a price increase in July 2021 have a modest weighted average price increase of 2% (min 0.7%, max 9.5%), and represent approximately $1.3 billion in prior year gross Medicaid expenditures. We also notice a couple of the bigger brand name products, like Daliresp (roflumilast), Opdivo (nivolumab) and Ocrevus (ocrelizumab), have taken two price increases thus far in 2021. If you’re curious, you can of course explore the details of individual product price increases within Stat Box #7 on the brand box score.
However, despite 2021 already having more price increases then 2020, there is still no change in the weighted average brand drug price increase as also shown in our brand box score Stat Box #4 (Figure 3). This suggests that although brand prices are occurring more frequently than last year, the size (or percent increase to the price) is in line with where it has been for products taking price increases over the last several years – in fact, 2021 still has the lowest weighted average list price increase than any year in the last decade.
Figure 3
Source: 46brooklyn Research, derived from Elsevier Gold Standard Drug Database (GSDD) - Box Score screenshot taken on 7/10/2021.
In addition, there is evidence that despite the rise in the number of products taking a price increase, the actual impact of those list price increases is no more significant than prior years (with a fewer number of price increases). This is because the share of Medicaid drug expenditures impacted by products with a price increase is no greater (~70%) than in the past several years as seen in Stat Box #5 (Figure 4). Note that individual results may vary based upon how representative you feel Medicaid expenditures are to overall prescription drug expenditures.
Figure 4
Source: 46brooklyn Research, derived from Elsevier Gold Standard Drug Database (GSDD) - Box Score screenshot taken on 7/10/2021.
So where does that leave us? Well here are the facts:
More brand name medications have taken a price increase in 2021 than in all of 2020.
The number of July price increases in 2021 has already on pace to eclipse the number of price increases in July 2020 (and on pace to eclipse 2019 and 2018).
The size of brand price increases, as measured as a percentage of WAC, is relatively unchanged despite the increased frequency of price changes.
The amount of utilization impacted within Medicaid by products taking a price increase, as measured by total Medicaid dollars spent on drugs, is relatively unchanged despite the increased frequency of price changes.
And yes, the first two bullet points don’t seem consistent with the later two bullet points. How is it that, in a year that is breaking recent trends in terms of the frequency of brand price increases, we are not seeing a broader impact to the dollars Medicaid spends on those prescription drugs?
Putting it (mostly) all together
Well, as we’ve written about before, when evaluating prescription drug pricing, both the aggregate and the details matter all at once. And some of the key details missing from our current review of brand name drug list price increases is their increasing irrelevance when we consider 1) rebates, which lower the prices of brand name drugs (by an estimated $175 billion as of 2019) despite list price increases; but also 2) the importance of brand name drug launch prices (and the utilization shifts that occur around these newly launched products). Plenty of the most expensive and newest brand-name products on the market today do not take list price increases, or take them very infrequently, effectively hiding them from our brand drug box score.
To demonstrate, consider an example in the medication Exondys 51 (eteplirsen). Long before the controversial approval of Aduhelm (aducanumab) for Alzheimer's by the FDA, Exondys 51 was perhaps the poster child of questionable FDA approvals. That is because it was approved despite the outside panel of experts recommending against its approval to the FDA due to questionable data regarding efficacy (much like what happened for Aduhelm).
So what does Exondys 51 have to teach us about the importance of launch prices? Well, if you go through our brand drug box score, you will see that Exondys 51 – which was approved by the FDA in 2016 – has never taken a price increase since its approval. This means that Exondys 51 is having no impact on the brand name drug price increase trends we are discussing above despite the fact that it carries a gross cost of between $750,000 and $1.5 million per patient per year. And if you go digging through Medicaid State Drug Utilization Data, you’ll see that gross Exondys 51 expenditures have grown over time, from $21.6 million in 2017 to $187 million in 2020 (data is unavailable for 2021) (Figure 5).
Figure 5
Source: Data.Medicaid.gov, 46brooklyn Research
It should also be noted that prior to the development of Exondys 51, treatment of Duchenne muscular dystrophy, or DMD (if it could be called that), was largely undertaken with generic steroids and was palliative in nature (and so not really a treatment). The importance here is that Exondys, and medications like it, do not show up in our brand price increase tracking despite being associated with significant increasing costs to the Medicaid program. Products like Exondys 51 can also result in shifting costs from “cheaper” therapies like steroids to more expensive options. (We say cheaper even though there were not really treatment options before Exondys 51 for DMD, although importantly, we still don’t actually know if Exondys 51 actually works – and likely won’t until 2026).
We can only speculate as to why Exondys 51 is not taking price increases like a good number of other brand-name medications this year, but it may have something to do with its already high launch price. Under the terms of the Medicaid Drug Rebate Program (MDRP), Sarepta Therapeutics is already required to give a significant rebate (double digit percentages) for Exondys 51. Due to the “inflation penalty” provision (i.e., additional rebates drugmakers have to shell out if they increase their list price faster than the CPI-U index), this rebate can get much larger when drugmakers take price increases. In addition, when you have a drug with such a high list price, even a small percentage is a lot of money (i.e., 1% of $180 million in gross annual spend for Exondys 51 in Medicaid is 2020 is $1.8 million – and we know that Medicaid SDUD doesn’t include every claim, such as 340B drugs).
So putting it all (mostly) together, if Sarepta were to take price increases on Exondys 51, the amount of money it potentially gives away in rebates in Medicaid can escalate pretty quickly. And considering that Exondys 51 is a product principally used in children, Medicaid is, we confidently guess, the largest purchaser of this drug in the country. Due to this dynamic, it is likely much easier just to bake the future value of price increases into the launch price and leave it be. To be clear, we are not saying that Sarepta consciously made the decision to do this. We have no more knowledge of their pricing decisions than you do. We are simply using this drug as an example to explain the logic on why higher launch prices and fewer price increases make sense for expensive drugs given the design of the MDRP.
And while Exondys 51 was the example we chose because of its impact in Medicaid spending over the last few years, these actions happen all the time within the prescription drug space. It’s happening right now with migraine medications, where newer brand-name medications are replacing older, and far cheaper generic options. And this is not necessarily a bad thing if the new options are better treatments for patients (assuming they’re affordable). At the end of the day, if we ever want treatments and cures for diseases such as cancer, diabetes, or any other horrible disease, those medicines will almost certainly cost more than existing treatment options, but hopefully not so much that the value won’t be there to the healthcare system as a whole.
So yes, brand name drug list price increases are occurring, and yes, brand list price increases should be monitored and tracked as they impact 70% of all expenditures in Medicaid, but if we are too laser focused on the simple fact that a medication did or did not take a list price increase, there is a lot we will overlook. If we ignore the massive discounts that drugmakers shell out that make net prices lower, we distort our perceptions of what is really happening in the marketplace. If we focus all of our attention on the brand name price increases themselves, we risk overlooking the high launch-price drugs that never take a price increase and the role those medications have on influencing drug expenditures. If we only debate what a fair brand drug price increase is, we will never address whether it is appropriate for our healthcare system to generate rebates (or as we like to call them – money from sick people) off those brand prices in the first place. And we may ultimately design solutions for problems that do not actually solve the underlying issues of drug affordability in this country.