A recent report by the Office of Statewide Health Planning and Development (OSHPD) have recently published data revealing changes in pharmaceutical Wholesale Acquisition Costs (WAC) from 2017 to the first quarter 2019 (OSHPD, 2019). The WAC is the list price which wholesalers must pay to acquire drugs from a pharmaceutical manufacturer. Following ground-breaking transparency legislation in California 2017, pharmaceutical firms must report WAC increases of over 16% since January 2017 (Mole, 2019). The following data comprises all 1020 reports submitted over a three-year period and breaks down drugs to subsets to further illustrate the US pricing landscape.
Differences in pricing groups
The report summarised price changes over three years using median percent changes. The median increase over three years for all prescription drugs reported was 25.8%, the OSHPD stated that this equated to roughly 8% annually, which is quadruple the US inflation rate (2%). The cheapest drugs, under $100, showed the greatest 3-year change (37.6%), whilst the most expensive drugs, over $10,000, showed the lowest increase (23.3%).
Differences in Drug Types
The OSHPD summary also reported how drug type affected changes in WAC. Three main groups, Non-Innovator Multiple Source drugs (Generics), Innovator Multiple Source drugs (Mainly generics) and Single Source drugs (Branded). Here, Non-Innovator Multiple drugs showed the largest increase, with a three-year median of 37.6%. This is compared to 25.2% for Innovator Multiple Source drugs and 25.8% for Single Source drugs.
Further insights in drug and pricing groups
Both the lowest valued drugs (<$100) and Non-Innovator Multiple Source drugs (Generics), showed the greatest increase in their groups. Combining these subsets, however, demonstrates an even greater disparity in cost increases. Non-Innovator Multiple Source drugs which were valued below $100 in 2017, showed a median average of 156.4% increase over three years. In comparison, the same class of drugs valued originally over $10,000, did not show an increase high enough to be eligible to for the report. Interestingly, Single Source branded drugs showed their greatest WAC increase (30.4%) when they were already in the most expensive subset (>$10k).
What factors have caused the price surge?
The 2017 California legislation also requires drug manufacturers to clarify the reasons for WAC increases over 16%. Unsurprisingly, pharmaceutical companies spared detail when giving their reasons. Amneal Pharmaceuticals defended a 200% price increase of Guanfacine by citing “production costs” and “market conditions” (Ives, 2019). Other factors, such as drug shortages and elimination of competitors may be affecting the costs of prescription drugs, according to Neeraj Sood, Vice Dean of the Southern California’s School of Public Policy (Ives, 2019).
Drug companies fighting against legislation argue that WAC prices reveal little about how the final retail price of drugs are determined. The body that represents American manufacturers, PhRMA, have even filed a lawsuit against the legislation, arguing that revealing WAC prices demonises manufacturers without considering that patients could be paying much lower prices after discounts and health insurance rebates (Pharmaceutical Researchers and Manufacturers of America v. Edmund Gerald Brown & Robert P David, ). In Nevada, Pharmaceutical companies were fined $17.4 million for not complying with transparency legislation requiring them to report diabetic drug pricing (Thenevadaindependent.com, 2019). Some companies defended the non-compliance stating that they simply were not aware of the new laws. With drug prices for patients increasing well above the rate of inflation, it may take more drastic and nationwide measures to regulate the market.
Ives, J. (2019). California’s new transparency law reveals steep rise in wholesale drug prices. [online] News-Medical.net. Available at: https://www.news-medical.net/news/20191014/Californiae28099s-new-transparency-law-reveals-steep-rise-in-wholesale-drug-prices.aspx [Accessed 5 Nov. 2019].
Mole, B. (2019). New drug-pricing data shows stunning hikes—one whopping 667% increase. [online] Ars Technica. Available at: https://arstechnica.com/science/2019/10/new-drug-pricing-data-shows-stunning-hikes-one-whopping-667-increase/ [Accessed 4 Nov. 2019].
Office of Statewide Health Planning and Development (OSHPD) (2019) Prescription Drug Cost Transparency.
Pharmaceutical Researchers and Manufacturers of America v. Edmund Gerald Brown & Robert P David  (United States District Court).
Thenevadaindependent.com. (2019). Nevada levies $17 million in fines on drug companies for noncompliance with diabetes drug transparency law. [online] Available at: https://thenevadaindependent.com/article/nevada-levies-17-million-in-fines-on-drug-companies-for-noncompliance-with-diabetes-drug-transparency-law [Accessed 5 Nov. 2019].
Pharmaceutical Pricing Analyst