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Increased competition in the pharmaceutical market does not necessarily translate into price reductions. "Our findings illustrate a market failure contributing to the rising costs of prescription drugs," researchers write in JAMA Internal Medicine.
In a research letter published in JAMA Internal Medicine online, Dr. Alvaro San-Juan-Rodriguez, PharmD., examined the effect the introduction of subcutaneous golimumab, certolizumab pegol, and intravenous golimumab have had on the price of existing tumor necrosis factor inhibitors (TNFi).
Prior to 2009 there were only three TNFi drugs approved for rheumatoid arthritis (RA) by the US Food and Drug Administration: Etanercept, infliximab, and adalimumab. It has been previously unknown whether or not the introduction of novel TNFi drugs for RA has had an effect on pricing as would be expected with increased competition.
Contrary to what might be expected in a free market with increased competition, the trend in annual costs of treatment estimated with wholesale acquisition costs significantly increased after the entry of new products into the market. Dr. Rodriguez states, “The rising costs of existing products may reflect manufacturers’ opportunism in response to payers’ increased willingness to pay for TNF inhibitors after market entry of new, more expensive agents.”
The author examined wholesale acquisition costs from 2006 to 2016 obtained from Analysource looking at TNFi treatment annually. Claims data from a 5 percent random sample of Medicare patients were utilized to formulate monthly estimates of annual costs of TNFi treatment. Adjustments had to be made due to manufacturer rebates reported for Medicare Part D.
Dr. Rodriguez constructed an interrupted time-series analysis with a linear model which regressed the annual cost of treatment of existing TNF inhibitors against a continuous variable for month, two indicator variables for each period after market entry of new drugs, and the interactions between them.
Trends in Medicare payments, out-of-pocket costs, coverage gap discounts, and other payments toward total costs of treatment with TNF inhibitors were evaluated however, due to lack of data, the authors were unable to assess how purchasing prices for drugs typically reimbursed under Medicare Part B changed over time.
The annual costs of treatment for established TNFi drugs, estimated with wholesale acquisition costs, significantly increased after the introduction of new TNFi products. According to Medicare data, the trend increased significantly after market entry of intravenous golimumab.
Looking at wholesale acquisition data, annual treatment costs with existing TNF inhibitors increased by 144 percent from April 2009 to December 2016 after new drug entry (from $15 809 to $38 574), compared with a 34 percent increase expected in the absence of new drugs’ entry (from $15 809 to $21 184).
When Medicare data was analyzed, annual treatment costs increased by 139 percent (from $14,901 to $35,613), compared with a 43% increase expected in the absence of new drugs’ entry (from $14,901 to $21,308). Medicare spending increased in parallel with increases in annual treatment costs.
TAKE-HOME POINTS AND FINAL THOUGHTS
It was estimated that if cost trends had not changed with the introduction of new TNFi drugs, that the costs of etanercept, infliximab, and adalimumab in December 2016 would have been 40-45 percent lower than they actually were.
Two key points were discovered:
1) Price increases were born solely by Medicare, while patient out-of-pocket spending remained flat.
2) Price increases were not offset by manufacturer discounts in the Medicare Part D coverage gap.
These counterintuitive results highlight a particular concern with pharmaceutical pricing. Dr. Rodriguez states, “we showed that increased competition in the pharmaceutical market does not necessarily translate into price reductions. Our findings illustrate a market failure contributing to the rising costs of prescription drugs.”
The question must be asked; What would cause a market failure that goes against supply and demand economics?
Dr. Rodriguez’s speculation that opportunism is responsible is well supported historically. When the cost life saving epinephrine is dramatically increased in response to greater awareness of serious allergies or when any drug that has been available at low cost for years is inflated in response to higher demand only profit can be blamed.
Undertaking regular cost analyses serves a key roll in monitoring corporate behavior and reminds us that while pharmaceutical companies are dedicated solely to helping people, that those people also include the healthy shareholders they are beholden to.
San-Juan-Rodriguez A, Prokopovich MV, Shrank WH, Good CB, Hernandez I. Assessment of price changes of existing tumor necrosis factor inhibitors after the market entry of competitors. JAMA Intern Med. Published online February 18. doi:10.1001/jamainternmed.2018.7656