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Health Aff (Millwood). 2019 Jan;38(1):76-83. doi: 10.1377/hlthaff.2018.05147.

The Contribution Of New Product Entry Versus Existing Product Inflation In The Rising Costs Of Drugs.

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Inmaculada Hernandez ( ) is an assistant professor of pharmacy and therapeutics at the University of Pittsburgh, in Pennsylvania.
Chester B. Good is the senior medical director for Value-based Pharmacy Initiatives at the University of Pittsburgh Medical Center (UPMC) Center for High-Value Health Care, within the Insurance Services Division of UPMC.
David M. Cutler is the Otto Eckstein Professor of Applied Economics in the Department of Economics at Harvard University and a research associate at the National Bureau of Economic Research, both in Cambridge, Massachusetts.
Walid F. Gellad is a core investigator at the Center for Health Equity Research and Promotion, Veterans Affairs Pittsburgh Healthcare System, and an associate professor of medicine at the University of Pittsburgh School of Medicine.
Natasha Parekh is a senior adviser in the UPMC Insurance Services Division.
William H. Shrank is the chief medical officer at UPMC Health Plan.


It is unknown to what extent rising drug costs are due to inflation in the prices of existing drugs versus the entry of new products. We used pricing data from First Databank and pharmacy claims from UPMC Health Plan to quantify the contribution of new versus existing drugs to the changes in costs of oral and injectable drugs used in the outpatient setting in 2008-16. The costs of oral and injectable brand-name drugs increased annually by 9.2 percent and 15.1 percent, respectively, largely driven by existing drugs. For oral and injectable specialty drugs, costs increased 20.6 percent and 12.5 percent, respectively, with 71.1 percent and 52.4 percent of these increases attributable to new drugs. Costs of oral and injectable generics increased by 4.4 percent and 7.3 percent, respectively, driven by new drug entry. The rising costs of generic and specialty drugs were mostly driven by new product entry, whereas the rising costs of brand-name drugs were due to existing drug price inflation.


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