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Do pharmaceutical prices rise anticipating branded competition?
Alice M Ellyson1,2,3, Anirban Basu1,4,5
1The Comparative Health Outcomes, Policy, and Economics (CHOICE) Institute, University of Washington, Seattle, Washington, USA.
Health Economics
|March 8, 2021
Summary
Pharmaceutical companies increase prices when new competitors enter the market. This "pipeline pressure" significantly drives up drug costs, particularly in the insulin market, due to insurance designs that hinder price negotiations.
Area of Science:
- Health Economics
- Pharmaceutical Policy
- Market Competition Analysis
Background:
- Rising pharmaceutical prices are a significant policy concern in the U.S.
- The impact of brand competition on drug pricing remains under-researched.
- Understanding pricing strategies under anticipated competition is crucial.
Purpose of the Study:
- To investigate the effect of impending branded competition on incumbent drug pricing.
- To analyze how drug pipeline pressure influences the prices of existing medications.
- To examine the role of insurance design in pharmaceutical price dynamics.
Main Methods:
- Utilized the insulin market as a natural experiment.
- Exploited exogenous variation in clinical trial completion of potential entrants.
- Analyzed pricing strategies of incumbent drug manufacturers under tiered insurance.
Main Results:
- Drug pipeline pressure leads to cumulative and significant upward pressure on incumbent drug prices.
- In the insulin market, pipeline pressure accounted for 10.5% of price growth.
- Similar findings were observed with other emerging biosimilars.
Conclusions:
- Anticipation of branded competition can drive up pharmaceutical prices.
- Insurance designs that do not prioritize negotiation and value-based principles may exacerbate price increases.
- Policy interventions should consider the impact of pipeline pressure and insurance structures on drug costs.
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