New molecules start at higher prices
The effect appears most significant with new drugs based on new molecules, Ridley said.
“Manufacturers of new molecules have more freedom to launch at higher prices because they are less constrained by public expectations of what the price should be,” he said.
The policy change has also driven up prices for molecules that have been on the market for years, but are being introduced in new dosages or forms, the data showed. The researchers offered an example in budesonide, a steroid used to treat asthma and COPD, for which the acquisition price increased from $1.75 before the Medicare Modernization Act to $5.34 per milliliter after the change.
The authors noted that between 2005 and 2010, Medicare Part B drug spending increased from $13.3 billion to $16.5 billion, a compound yearly growth rate of 4 percent. But from 2010 and 2015, spending increased from $16.5 to $25.7 billion, a 9 percent growth rate.
The problem will likely only grow as drugs launched since 2005 comprise a larger share of the drugs on the market, Ridley said.
Possible solutions in value-based pricing
To curb drug prices, the researchers suggest a reimbursement model based on a fixed, per-unit amount.
“Providers would be more sensitive to the price and manufacturers would have less incentive to choose a high launch price to drive up future prices,” Ridley said.
Lower prices would benefit providers, as well as patients who pay a share of the price. One option for a fixed reimbursement would be to cap reimbursement based on the cost-effectiveness of the product, Ridley suggested.
“I think the solution is to pay not cost-plus, but based on the cost effectiveness of the drug,” Ridley explained. “The British do this with some success. They pay for drugs based on value, where they measure value by the quality-adjusted life years added by the drug.”
Health care systems in many countries, including in the U.S., are moving toward value-based care, and value-based drug reimbursement would be another aspect of that reform, Ridley said.