Journal of Health Politics, Policy and Law
Vol. 47, Issue 6, Pages 629-648
Context: To what extent does pharmaceutical revenue growth depend on new medicines versus increasing prices for existing medicines? Moreover, does using list prices, as is commonly done, instead of prices net of confidential rebates offered by manufacturers, which are harder to observe, change the relative importance of the sources of revenue growth? Methods: This study uses data from SSR Health LLC to address these research questions using decomposition methods that analyze list prices, prices net of rebates, and sales for branded pharmaceutical products sold primarily through retail pharmacies. Findings: From 2009 to 2019, retail pharmaceutical revenue growth was primarily driven by new products rather than by price increases on existing products. Failing to account for confidential rebates creates a more prominent role for price increases in explaining revenue growth, because list price inflation during this period was 10.9%, whereas net price inflation was 3.3%. Conclusions: Policies that restrict price growth on existing medicines likely need to be coupled with policies that reduce launch prices to have a meaningful long-term impact on pharmaceutical revenue growth. Using pharmaceutical list prices is often an inadequate approximation for net prices because the role of rebates has increased and varies by drug class.
Kakani, Pragya, Michael Chernew and Amitabh Chandra. "The Contribution of Price Growth to Pharmaceutical Revenue Growth in the U.S.: Evidence from Medicines Sold in Retail Pharmacies." Journal of Health Politics, Policy and Law 47.6 (December 2022): 629-648.