The Contribution of Price Growth to Pharmaceutical Revenue Growth in the U.S.: Evidence from Medicines Sold in Retail Pharmacies.

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, versus prices net of confidential rebates offered by manufacturers, which are harder to observe, change the relative importance of the sources of revenue growth?

METHODS

We address these research questions using decomposition methods to analyze list prices, prices net of rebates, and sales for branded pharmaceutical products sold primarily through retail pharmacies using data from SSR Health, LLC.

FINDINGS

From 2009-2019, retail pharmaceutical revenue growth was primarily driven by new products rather than 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 over 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 lower 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.