Health Affairs study misses the mark on medicine costs

A recent study published in Health Affairs concludes that list price inflation for existing brand medicines is a key driver of rising medicine spending. However, by failing to account for the substantial rebates and discounts that payers negotiate for many brand medicines, this study dramatically overestimates the role of list price increases.

Analysts at SSR Health recognized this fatal flaw in the study and replicated the methodology using net medicine prices (that is, prices that take these negotiated rebates and discounts into account). By using data that more accurately reflect the cost of medicines, the analysts reached the opposite conclusion of the Health Affairs study, namely that medicine spending increases are not driven by price increases for existing brand medicines. In fact, SSR Health data show that average net prices for single-source brand medicines have been falling since the fourth quarter of 2017, and fell 5.1 percent as of the third quarter of 2018.

How could the authors of the Health Affairs article get it so wrong? As SSR Health researchers Richard Evans and Scott Hinds explain, “The authors’ analysis relies on list, rather than net, prices, which overstates the true economic effect of price changes for most patients, particularly in this timeframe.”

According to SSR Health data, the average difference between list and net prices grew from 23.1 percent to 37.4 percent over the study period (and has since reached 42.8 percent as of the third quarter of 2018). The authors of the Health Affairs study were clearly aware of the pitfalls of excluding such sizable rebates and discounts from their study, noting, “Our findings likely overestimated cost increases for brand-name drugs.”

The misleading conclusions of this study are a clear illustration of how a singular focus on list prices can provide an incomplete and inaccurate picture of medicine spending. Analyses based solely on the list prices of medicines fail to capture important underlying trends in the pharmaceutical market and can produce findings that lead researchers and policymakers to draw incorrect conclusions. These types of flawed analyses do little to move discussions about health care costs forward in a productive and effective manner.

Learn more at LetsTalkAboutCost.org.