A ARP PUBLIC POLICY INSTITUTE SEPTEMBER 2019 Rx Price Watch Report Trends in Retail Prices of Prescription Drugs Widely Used by Older Americans: 2017 Year-End Update Stephen W. Schondelmeyer PRIME Institute, University of Minnesota Leigh Purvis AARP Public Policy Institute Table of Contents EXECUTIVE SUMMARY .......................................................................................................................................... 1 FINDINGS ........................................................................................................................................................................3 I. Price Trends for Most Widely Used Prescription Drugs ..............................................................3 II. Twelve-Year Cumulative Retail Price Changes for Most Widely Used Prescription Drugs, 2006 to 2017 ....................................................................................................................................7 CONCLUDING OBSERVATIONS..............................................................................................................................8 APPENDIX A: OVERVIEW OF COMBINED MARKET BASKET OF DRUG PRODUCTS .................9 APPENDIX B: DETAILED METHODOLOGY AND DESCRIPTION OF RETAIL PRICE DATA .... 10 Figures Figure 1. Average Annual Prescription Drug Price Change Consistently Higher than Inflation between 2006 and 2017 ..............................................................................................................................................................3 Figure 2. Rolling Average and Point-to-Point Changes in Retail Prices Have Consistently Exceeded Rate of General Inflation since 2006...............................................................................................................................4 Figure 3. Components of Annual Percentage Change in Retail Prices in AARP Combined Market Basket of Most Widely Used Prescription Drugs, 2006 to 2017 ...................................................................................5 Figure 4. The Average Annual Cost of Widely Used Prescription Drugs Would Be Substantially Lower if Retail Price Changes Were Limited to General Inflation.............................................................................8 Tables Table 1. Characteristics of Drugs Widely Used by Older Americans....................................................................9 Table A-1. Average Annual Percent Change in Price for Hypothetical Prescription Drug A, 2017 ............. 15 Table A-2. Average Changes in Price and Cost of Therapy for 10 Hypothetical Prescription Drugs, 2017 ... 16 Table A-3. Recalculating Weights When Prescription Drugs Drop Out of the Sample ................................. 17 TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE iii iv TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE Executive Summary Retail prices for a combined set of widely 2006 and 2017. Prescription drug prices have used prescription drugs consistently increased regularly increased faster than general inflation faster than general inflation in every year from over the past 12 years—the entire period since 2006 to 2017. These findings are primarily the beginning of our report series on prescription attributable to strong drug price growth among drug prices in 2004.1 brand name and specialty drugs, which more In 2017, the average annual increase in retail than offset often substantial price decreases prices2 for AARP’s overall (combined) market among generic drugs. basket of 754 prescription drugs—which included 267 brand name drugs, 390 generic drugs, and 97 For a consumer who takes a prescription drug on a chronic basis, the average annual cost specialty drugs widely used by older Americans, of therapy for one widely used drug reached including Medicare beneficiaries—was 4.2 almost $20,000 in 2017. Notably, the annual percent. The general inflation rate was 2.1 percent cost of therapy would have been more than over the same time period. $12,500 lower in 2017 if price changes had Increases in the retail price of prescription been limited to the rate of general inflation drugs have a corresponding impact on the cost between 2006 and 2017. of drug therapy for the individual and all other payers. In 2017, the average annual retail cost of AARP’s Public Policy Institute finds that average drug therapy for the widely used brand name, price increases for prescription drugs widely generic, and specialty prescription drugs used used by older Americans, including Medicare in this analysis was almost $20,000 per year. beneficiaries, far outstripped the price increases This average annual cost was nearly 20 percent for other consumer goods and services between higher than the average Social Security retirement 1 The AARP Public Policy Institute in its Rx Price Watch series provides reports with separate analyses of the price changes for three different segments of the pharmaceutical market: brand name, generic, and specialty drug products. These three market baskets are important because a different mix of drug manufacturers typically makes the drug products in each segment and each of these segments is subject to unique market dynamics, pricing, and related behaviors. In addition, the Rx Price Watch series also reports the price change for an overall market basket (i.e., brand name, generic, and specialty drug products combined) to reflect the overall market impact of drug price changes. Some critics have argued that the brand name price index report alone overstates the effect of drug price changes on the overall prescription drug market. Those critics argue that an overall measure should include the effect of generic prescription drug price competition and the impact of generic substitution. This is precisely why the AARP Rx Price Watch series of reports also provides an overall market basket (including brand name, generic, and specialty drug products) to examine the price change impact for the overall prescription drug market. While this overall perspective is useful for those interested in understanding the industrial economics of the entire prescription drug market, consumers have proven to be considerably more interested in the price trend for the specific products that they are taking as an individual rather than all drug products on the market. In addition, separate analyses of the different market segments (i.e., brand name, generic, and specialty drug products) is important because they represent unique and distinct segments in the prescription drug market, and they provide an indication of policy changes that may be warranted in the various market segments. Previous reports from this series are on the AARP website at http://www.aarp.org/health/medicare-insurance/info-04- 2009/rx_watchdog.html and http://www.aarp.org/rxpricewatch. 2 The retail prices used in this report are derived from Truven Health’s MarketScan® Commercial Database and MarketScan® Medicare Supplemental Database (Truven Health MarketScan® Research Databases). The prices reflect the total price for a specific prescription that a pharmacy benefit manager (PBM) bills to a specific health plan for consumers enrolled in employer-sponsored or government-sponsored (i.e., Medicare or Medicaid) health plans and not simply the out-of-pocket cost (such as the copay) that a consumer would pay at the pharmacy. These amounts may or may not reflect what the PBM paid the pharmacy or the usual and customary price that a pharmacy would charge a cash-pay consumer for the same prescription. TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE 1 benefit ($16,848).3 It was also more than three- Previous reports by the AARP Public Policy quarters of the median income for Medicare Institute have focused on retail price changes for beneficiaries ($26,200)4 and almost one-third of traditional outpatient prescription drugs (both the median US household income ($60,336).5 brand name and generic drugs) and specialty Notably, the average annual cost of drug therapy prescription drugs (also including both brand for one drug used on a chronic basis would name and generic drugs). Separate analyses of have been more than $12,500 lower in 2017 (i.e., the price changes for these groups of drugs are $7,263 v. $19,816) if retail price changes had been reported because these sets of drugs are typically limited to the rate of general inflation between made by different drug manufacturers and their 2006 and 2017. prices are subject to different market dynamics, pricing, and related behaviors. However, it is also Prescription drug price increases affect all types useful to view the average price change for the of payers, including individuals, employers, combined market basket of outpatient prescription private insurers, and taxpayer-funded programs drugs widely used by older Americans in such as Medicare and Medicaid. For example, the order to determine the trend across all types of Medicare Payment Advisory Commission recently prescription drugs.8 noted that high drug prices and drug price increases are a major factor in recent Medicare This report presents annual and 12-year prescription drug spending growth.6 These cumulative price changes through the end of spending increases, driven by high and growing 2017. The first set of findings shows annual drug prices, will affect all Americans in some rates of change in retail prices for widely used way. Those with private health insurance will pay prescription drugs from 2006 through 2017, using more in cost sharing and higher premiums for both rolling average and point-to-point methods their health care coverage.7 In addition, increased (see Appendix B). The second set of findings government spending on prescription drugs will summarizes the cumulative impact of retail price ultimately lead to higher taxes and/or cuts to changes for prescription drugs that have taken public programs. place across the entire 12-year period from 2006 through 2017. 3 The average monthly Social Security retirement benefit in 2017 was approximately $1,404 per month. Social Security Administration, Annual Statistical Supplement to the Social Security Bulletin, 2018 (Washington, DC, Social Security Administration, 2019), https://www.ssa.gov/policy/docs/statcomps/supplement/2018/5b.pdf. 4 The median annual income for Medicare beneficiaries was $26,200 in 2016. Gretchen Jacobson et al., Income and Assets of Medicare Beneficiaries, 2016-2035 (Washington, DC: Kaiser Family Foundation, April 2017). 5 Gloria G. Guzman, “Household Income: 2017, American Community Survey Briefs,” ACSBR/17-01, US Census Bureau, Washington, DC, September 2018. 6 Medicare Payment Advisory Commission (MedPAC), June 2018 Report to the Congress: Medicare and the Health Care Delivery System (Washington, DC, MedPAC, June 2018). 7 American Academy of Actuaries, “Issue Brief: Prescription Drug Spending in the U.S. Health Care System: An Actuarial Perspective,” American Academy of Actuaries, Washington, DC, March 2018. https://www.actuary.org/sites/ default/files/files/publications/PrescriptionDrugs.030718.pdf. 8 See Appendix A for a brief overview of the combined market basket. 2 TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE Findings I. PRICE TRENDS FOR MOST WIDELY USED • The average annual retail price increase in PRESCRIPTION DRUGS 2017 for these 754 widely used prescription • Retail prices for the AARP combined set of drugs was twice the rate of general inflation prescription drug products most widely used (4.2 percent v. 2.1 percent).10 by older Americans rose 4.2 percent in 2017 (Figure 1).9 This average annual increase was — Two of the three market baskets (brand lower than the drug price increases observed name and specialty drugs) experienced in the prior 11 years (i.e., 2007 to 2017), which substantial price increases of 8.4 percent ranged from 4.4 percent to 11.7 percent. and 7.0 percent, respectively, in 2017, while Figure 1 Average Annual Prescription Drug Price Change Consistently Higher than Inflation between 2006 and 2017 Prescription Drug Prices (754 drugs) 11.7% General Infation (CPI-U) 11.2% 7.9% 7.1% Average Annual % 6.3% 6.3% 6.3% 6.2% 5.9% 4.1% 4.4% 4.2% 3.8% 3.2% 2.9% 2.1% 2.1% 1.6% 1.5% 1.6% 3.3% 1.3% 0.1% -0.3% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Note: Calculations of the average annual prescription drug price change include the 754 drug products most widely used by older Americans (see Appendix A). Source: Prepared by the AARP Public Policy Institute and the PRIME Institute, University of Minnesota, based on data from Truven Health MarketScan® Research Databases. 9 When measured as a 12-month rolling average and weighted by actual 2014 retail prescription sales to older Americans ages 50 and above, including Medicare beneficiaries. 10 The general inflation rate used in this report is based on the average annual rate of change in the Consumer Price Index– All Urban Consumers for All Items (CPI-U; seasonally adjusted), Bureau of Labor Statistics series CUSR0000SA0. TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE 3 the third market basket (generic drugs) for a single month (referred to as an annual point- decreased 9.3 percent in 2017.11 to-point change). • The average annual increase in retail prices Figure 2 shows the percentage change in for the AARP combined set of drug products prescription drug prices for each month compared exceeded the corresponding rate of general with the same month in the previous year. This inflation every year from 2006 through 2017. trend is shown alongside the 12-month rolling The annual retail price change for all prescription average to allow more detailed examination of the products reported in Figure 1 averages annual rate and timing of prescription drug price changes point-to-point price changes for each month in the over the entire study period. This analysis reveals preceding 12-month period (referred to as a rolling three broad trends in the AARP combined market average change), smoothing over the entire year basket of prescription drugs since implementation the annual change in all drug prices that occurs of the Medicare Part D program in 2006: Figure 2. Rolling Average and Point-to-Point Changes in Retail Prices Have Consistently Exceeded Rate of General Inflation since 2006 Annual % Change in Price (weighted average for point-to-point from same month in previous year) Annual % Change in Price (12-month rolling average) General Infation (12-month rolling average) 14.0% Affordable Care Medicare Part D Act passed 12.0% becomes available 10.0% Annual % Change 8.0% 6.0% Brand name drug manufacturers begin 4.0% providing coverage gap discounts 2.0% 0.0% -2.0% Jan-06 Sep-06 Jan-07 Sep-07 Jan-08 Sep-08 Jan-09 Sep-09 May-06 Jan-10 Sep-10 May-07 Jan-11 Sep-11 May-08 Jan-12 Sep-12 May-09 Jan-13 Sep-13 May-10 Jan-14 Sep-14 May-11 Jan-15 Sep-15 May-12 Jan-16 Sep-16 May-13 Jan-17 Sep-17 May-14 May-15 May-16 May-17 Note: Calculations of the average annual prescription drug price change include the 754 drug products most widely used by older Americans (see Appendix A). Source: Prepared by the AARP Public Policy Institute and the PRIME Institute, University of Minnesota, based on data from Truven Health MarketScan® Research Databases. 11 Stephen W. Schondelmeyer and Leigh Purvis, “Rx Price Watch Report: Trends in Retail Prices of Brand Name Prescription Drugs Widely Used by Older Americans, 2017 Year-End Update,” AARP Public Policy Institute, Washington, DC, September 2018; Stephen W. Schondelmeyer and Leigh Purvis, “Rx Price Watch Report: Trends in Retail Prices of Generic Prescription Drugs Widely Used by Older Americans, 2017 Year-End Update,” AARP Public Policy Institute, Washington, DC, April 2019; Stephen W. Schondelmeyer and Leigh Purvis, “Rx Price Watch Report: Trends in Retail Prices of Specialty Prescription Drugs Widely Used by Older Americans, 2017 Year-End Update,” AARP Public Policy Institute, Washington, DC, June 2019.” These reports can all be found at http://www.aarp.org/rxpricewatch. 4 TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE • Retail price changes for the AARP combined inflation accelerated dramatically between set of prescription drugs have consistently 2012 and 2014 but has since slowed. exceeded the rate of general inflation since The annual trends seen in the combined market 2006. basket reflect retail price changes in the brand name, generic, and specialty market baskets. As • The point-to-point average change in prices Figure 3 shows, the rates of price increase in the was only slightly higher than the rate of brand name and specialty market baskets have inflation between November 2006 and exceeded the rate of general inflation since at least December 2006. However, the rolling average January 2006. In contrast, on average, retail prices change in prices has consistently remained for generic drugs have generally been declining higher than the rate of general inflation (i.e., there has been an average negative change between 2006 and 2017. in the retail price of generics) over the same time • The gap between the rate of prescription drug period. price change for the AARP combined market It is notable that retail prices for the generic basket and the rate of change in general market basket increased dramatically between Figure 3. Components of Annual Percentage Change in Retail Prices in A ARP Combined Market Basket of Most Widely Used Prescription Drugs, 2006 to 2017 Brands (267 drug products) Combined (754 drug products) Generics (390 drug products) General Infation (CPI-U) Specialty (97 drug products) 18.0% Medicare Part D 16.0% becomes available Affordable Care 14.0% Act passed 12.0% 10.0% 8.0% Annual % Change 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% Brand name drug -12.0% manufacturers begin -14.0% providing coverage gap -16.0% discounts -18.0% -20.0% -22.0% -24.0% Dec-05 Apr-06 Aug-06 Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Note: Calculations of the average annual prescription drug price change include the 754 drug products most widely used by older Americans (see Appendix A). Source: Prepared by the AARP Public Policy Institute and the PRIME Institute, University of Minnesota, based on data from Truven Health MarketScan® Research Databases. TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE 5 June 2013 and December 2014—even exceeding The average cost of prescription drug therapy the rate of price increases among widely used reached $19,816 per drug per year in 2017. specialty drugs. These price increases had a strong Figure 4 presents the retail price for 535 widely impact on the average annual increase in retail used brand name, generic, and specialty prices for the combined index, pushing the rate prescription drugs indicated for treating chronic of increase as high as 12.5 percent. Similarly, conditions (out of a total market basket of 754 dramatic decreases in retail prices for the generic drugs) when the price is expressed as an average annual cost of therapy per drug. market basket that began in January 2015 and peaked in August 2016 caused the average annual • The average annual cost of therapy was almost increase in retail prices for the combined index to $20,000 per drug per year for widely used prescription drugs at the end-payer (retail) slow over that time period. level in 2017. These findings are particularly striking given — This average annual cost ($19,816) is that generics already have comparatively low nearly three times the average annual cost prices and represent a relatively small share (21.4 ($6,636) for a widely used prescription percent) of total drug expenditures in the AARP drug in 2006, the year Medicare combined market basket. implemented Part D. Figure 4. The Average Annual Cost of Widely Used Prescription Drugs Would Be Substantially Lower if Retail Price Changes Were Limited to General Inflation Cost of Therapy per Drug (Actual) Cost of Therapy per Drug (Price Growth Limited to General Infation) $19,816 $18,149 Annual Retail Cost of Threapy per Drug $16,504 $14,822 $12,710 $11,075 $10,069 $9,561 $8,936 $6,998 $7,821 $6,636 $7,463 $7,766 $7,643 $7,480 $7,263 $6,251 $6,175 $6,684 $6,636 $6,465 $6,626 $6,099 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Note: Calculations of the average annual prescription drug price change include the 754 drug products most widely used by older Americans (see Appendix A). Source: Prepared by the AARP Public Policy Institute and the PRIME Institute, University of Minnesota, based on data from Truven Health MarketScan® Research Databases. 6 TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE The average price of therapy for the AARP been limited to the rate of general inflation combined market basket greatly exceeded the between 2006 and 2017.13 average price of therapy for the brand name and generic market baskets. The higher price of II. TWELVE-YEAR CUMULATIVE RETAIL therapy for the combined market basket is due to PRICE CHANGES FOR MOST WIDELY USED the markedly higher price level of specialty drug PRESCRIPTION DRUGS, 2006 TO 2017 products. This AARP report tracked prescription drug prices at the retail level for the 12-year period • The average annual cost of therapy for widely from December 31, 2005, to December 31, 2017. used generic drug products was $365 in 2017. Forty-two percent (318 of 754) of the widely used • The average annual cost of therapy for widely drugs in the AARP combined market basket were used brand name drug products was $6,798 in on the market for the entire 12-year period (i.e., 2017. the end of 2005 through the end of 2017). • The average annual cost of therapy for widely Cumulatively, the average retail price for these used specialty drug products was $78,871 in 318 widely used drug products increased 203.4 2017. percent over 12 years, compared with a 25.1 In 2017, the average annual price of therapy for percent increase in general inflation in the same specialty prescription drugs was almost 12 times period. This means that prescription drug prices higher than the average annual price of therapy increased more than eight times the rate of for brand name prescription drugs ($78,871 v. general inflation during this time period. $6,798, respectively) and more than 215 times Seventy percent (223 of 318) of the drug products higher than the average annual price of therapy that have been on the market since the end for generic prescription drugs ($78,871 v. $365, of 2005 are used to treat chronic conditions. respectively).12 The average annual retail cost of drug therapy Notably, the average annual cost of therapy per for prescription drug products on the market drug for the 535 widely used brand name, generic, since the end of 2005 and used to treat chronic and specialty drug products used in this analysis conditions was $10,828 in 2017. This amount would have been $7,263—more than $12,500 represents an increase of $7,415 over the 2006 lower—in 2017 if their retail price changes had annual cost of $3,412. 12 Schondelmeyer and Purvis, “Brand Name Prescription Drugs”; Schondelmeyer and Purvis, “Generic Prescription Drugs”; Schondelmeyer and Purvis, “Specialty Prescription Drugs.” 13 There is no clear rationale for prescription drug price increases given that launch prices ostensibly reflect the costs associated with developing the drug and future research costs. Aaron S. Kesselheim, Jerry Avorn, and Ameet Sarpatwari, “The High Cost of Prescription Drugs in the United States: Origins and Prospects for Reform,” Journal of the American Medical Association 316, no. 8 (2016): 858–71. TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE 7 Concluding Observations The findings of this report show that average Spending increases driven by high and growing annual price increases for widely used prescription drug prices affect all Americans in prescription drug have consistently exceeded some way. Those with private health insurance the rate of general inflation. These findings are will pay higher premiums and/or cost sharing attributable primarily to drug price growth among for their health care coverage15 and government brand name and specialty drugs, which more programs will grow faster than the tax-based revenue that supports them, leading to higher than offset the often substantial price decreases taxes and/or cuts in public health or other among generic drugs. programs. The continued increases in overall prescription Policy makers interested in slowing prescription drug price growth despite substantial price drug price increases should focus on changes that decreases among widely used generic drugs could produce long-term, meaningful, and sustainable be an indication that employers and government effects. While policy options should encourage programs can no longer rely on lower-priced meaningful pharmaceutical innovation, an generic drugs to counterbalance the price growth equally important goal should be improving the trends seen in the brand name and specialty health and the financial security of consumers prescription drug markets. and taxpayer-funded programs like Medicare and Medicaid. Increases in the price of prescription drugs affect both patients and the larger economy. If This report is the latest in the AARP Public Policy recent trends in prescription drug prices and Institute’s Rx Price Watch series. Separate reports analyze price changes for widely used brand related price increases continue, it will almost name, generic, and specialty drug products. undoubtedly become more difficult for patients to access and afford necessary medications. This will lead to poorer health outcomes and higher health care costs in the future.14 14 Zachary A. Marcum, Mary Ann Sevick, and Steven M. Handler, “Medication Nonadherence: A Diagnosable and Treatable Medical Condition,” Journal of the American Medical Association 309, no. 20 (2013): 2105–06; Aurel O. Iuga and Maura J. McGuire, “Adherence and Health Care Costs,” Risk Management and Healthcare Policy 7 (2014): 35–44. 15 American Academy of Actuaries, “Issue Brief.” 8 TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE Appendix A: Overview Of Combined Market Basket Of Drug Product The brand name market basket for this price Based on retail prescription drug prices from the change study is composed of 267 drug products. Truven Health MarketScan® Research Databases, The generic market basket is composed of 390 price changes were determined by comparing the widely used generic drug products. The specialty retail price for a drug product in a given month market basket for this price change study is with the price for the same drug product in the composed of 97 widely used specialty drug same month in the previous year. A 12-month products. rolling average of these price changes was then There are 754 drug products in the overall calculated to determine an average annual price (combined) market basket.16 Brand name change. prescription drugs consumed the majority of the Price changes for the three market baskets expenditures (53.2 percent), while generic drugs (brand name, generic, and specialty drugs) were were the vast majority of prescriptions dispensed combined using fixed weights proportional to the (78.9 percent). Specialty drugs, not including any total expenditures for each market basket in 2014 payments made under Medicare Parts A and B,17 (see “Share of Expenditures” column in Table 1). represented 25.4 percent of expenditures and 0.5 These weights remained fixed over time so that percent of prescriptions (see Table 1). the combined index represented price changes and not changes in the mix of drugs prescribed and used. Table 1. Characteristics of Drugs Widely Used by Older Americans Type of Prescription Share of Prescriptions Share of Expenditures Brand name 20.6% 53.2% Generic 78.9% 21.4% Specialty 0.5% 25.4% Note: Retail price data reflect the total price for a specific prescription that a pharmacy benefit manager (PBM) bills to a specific health plan for consumers enrolled in employer-sponsored or government-sponsored (i.e., Medicare or Medicaid) health plans and not simply the out-of- pocket cost (such as the copay) that a consumer would pay at the pharmacy. These amounts may or may not reflect what the PBM paid the pharmacy or the usual and customary price that a pharmacy would charge a cash-pay consumer for the same prescription. Totals may not sum due to rounding. Source: PRIME Institute, University of Minnesota, based on 2014 data from the Truven Health MarketScan® Research Databases and a Medicare Part D plan provider. See Appendix B for additional detail. 16 In order to measure the impact of changes in retail price alone, the weights for drug products in this market basket are fixed over time. Drug products that enter the market as generics after 2014 are not included in this index. If drug products are withdrawn from the market, they are dropped from the market basket in subsequent periods and the weights of other drugs are proportionately adjusted. 17 Because the specialty market basket does not include drugs that fall under Medicare Parts A and B, these numbers do not reflect total specialty drug utilization and spending among Medicare beneficiaries. TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE 9 Appendix B: Detailed Methodology and Description of Retail Price Data This appendix describes in detail how brand The AARP Public Policy Institute and the name, generic, and specialty drugs are defined in University of Minnesota’s PRIME Institute this study; how the study identified the market originally collaborated to report an index of basket (i.e., sample) of drugs; how it measured manufacturers’ drug price changes based on prices; and how it calculated weighted average the Wholesale Acquisition Cost (WAC) from price changes. In addition, the appendix describes the Medi-Span Price-Chek PC database.18 In methods and assumptions used to determine 2009, AARP and the PRIME Institute created prices and price changes by drug manufacturer an additional drug price index based on actual and by therapeutic category. retail prices19 from Truven Health’s MarketScan® Commercial Database and MarketScan® OVERVIEW Medicare Supplemental Database (Truven Health AARP’s Public Policy Institute has been MarketScan® Research Databases).20 Thus, the publishing a series of reports that track price report series uses the same market basket of changes for the prescription drug products most brand name prescription drugs widely used by widely used by older Americans, with annual and older Americans to examine both manufacturer- quarterly results reaching as far back as 2000. level prices and retail-level prices in the market. Since 2008, these reports have focused on price The addition of retail-level prices allows the changes for three market baskets—brand, generic, AARP Public Policy Institute to assess what prices and specialty drugs. In addition, a combined payers (i.e., insurers, consumers, or government market basket (i.e., brand, generic, and specialty) programs) are paying and whether rebates and has been added to the series, which is useful to other types of discounts have been passed along view the price change trend across all types of to payers and their covered members. outpatient prescription drugs in the US market. Recently, the AARP Public Policy Institute and While this overall perspective is useful for the University of Minnesota’s PRIME Institute those interested in understanding the industrial collaborated to develop a new market basket of economics of the entire prescription drug market, widely used prescription drugs based on 2014 consumers have proven to be considerably more data provided by the Truven Health MarketScan® interested in the price trend for the specific Research Databases and a large Medicare Part products that they are taking as individuals rather D plan provider. UnitedHealthcare provides than all drug products on the market. Medicare Part D coverage and is the organization 18 Medi-Span is a private organization that collects price and other clinical and drug-related data directly from drug manufacturers and wholesalers. Price-Chek PC (now Price Rx Pro®) is a product of Medi-Span (Indianapolis, IN), a division of Wolters Kluwer Health Inc., and uses data from Medi-Span’s Master Drug Database (MDDB®). This commercial drug database has been published for more than 35 years. See http://www.medispan.com. 19 The retail prices used in this report series reflect the total price for a specific prescription that a pharmacy benefit manager (PBM) bills to a specific health plan for consumers enrolled in employer-sponsored or government-sponsored (i.e., Medicare or Medicaid) health plans and not simply the out-of-pocket cost (such as the copay) that a consumer would pay at the pharmacy. These amounts may or may not reflect what the PBM paid the pharmacy or the usual and customary price that a pharmacy would charge a cash-pay consumer for the same prescription. 20 The Truven Health MarketScan® Research Databases, a family of databases, contain individual-level health care claims, lab test results, and hospital discharge information from large employers, managed care organizations, hospitals, Medicare, and Medicaid programs. Truven Health constructs the MarketScan® Research Databases by collecting data from employers, health plans, and state Medicaid agencies and placing them into databases. Erica Danielson, “White Paper: Health Research Data for the Real World: The MarketScan® Databases,” White Paper, Truven Health Analytics, Ann Arbor, MI, January 2014. 10 TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE that insures the AARP Medicare Rx plans. This economically independent generic marketers enter Medicare Part D plan provider supplied data for the market. all prescriptions provided to its Medicare Part Specialty pharmaceuticals are drugs that treat D enrollees in 2014. This Rx Price Watch report complex, chronic conditions and that often used the 2014 market basket.21 As in the past, the require special administration, handling, and series will include separate data sets, analyses, care management. Specialty drugs have been and reports for brand name, generic, and specialty the fastest-growing group of new drug products drugs, as well as the overall combined market over the past decade. This important group of basket. drugs and biologicals is not precisely defined, but it includes products based on one or more DEFINING BRAND, GENERIC, AND SPECIALTY of the following: (1) how they are made, (2) how PHARMACEUTICALS they are approved by the FDA, (3) conditions A brand name drug is defined as a product they treat, (4) how they are used or administered, marketed by the original holder of a new drug (5) their cost, and (6) other special features. The application (NDA, or related licensees) or a operational definition of specialty drugs for this biological license application (BLA; or related study is further described in a later section of the licensees) for a given drug entity. A generic drug methodology. is defined as any drug product marketed by an entity other than the NDA or BLA holder or the CREATING THE MARKET BASKET OF DRUGS related licensees. The AARP Public Policy Institute has been The market conditions and pricing behavior reporting prescription drug product price changes for brand name and generic drugs are quite since 2004. The original reports were based different. For example, brand name drugs have on a market basket of retail and mail-order a monopoly based on patents and other forms of prescriptions provided to about 2 million people exclusivity for a number of years after market ages 50 and older who used the AARP Pharmacy entry,22 and they do not experience typical price Service in 2003. Following the implementation competition from therapeutically equivalent (i.e., of the Medicare Part D program, we chose to AB-rated generic equivalents) drug products that develop a new market basket of drugs using 2006 can be routinely and directly substituted at the data provided by UnitedHealthcare (formerly pharmacy level. On the other hand, generic drug called PacifiCare), which is also the organization products typically face price competition from that insures the AARP Medicare Part D plans. the time the generic first enters the market, when All AARP price trend reports published between there are two or more therapeutically equivalent 2007 and 2012 used this market basket. drug products (as evaluated by the Food and Drug Administration [FDA] and reported in the Subsequently, we updated the AARP market Orange Book), including the brand name product. baskets again using 2011 data provided by Truven However, certain generic drugs—that is, those for Health MarketScan® Research Databases and the which the generic manufacturer files a paragraph same Medicare Part D plan provider that was IV certification of patent non-infringement—may used for the 2006 market basket. We weighted receive 180 days of exclusivity as the sole generic the data from the Medicare Part D plan provider after this first generic drug product is approved. by Part D enrollment and the Truven Health In cases in which there is only one generic drug MarketScan® data by the 50-plus population product on the market, the level of economic less Part D enrollment, based on data from the competition may be somewhat limited until other Centers for Medicare and Medicaid Services and 21 The US Food & Drug Administration approved 113 new drugs and biological products between 2015 and 2017. These products are not included in our current market basket but will be included in future market baskets if they meet our inclusion criteria. “New Drugs at FDA: CDER’s New Molecular Entities and New Therapeutic Biological Products,” US Food & Drug Administration, accessed September 1, 2018, https://www.fda.gov/Drugs/DevelopmentApprovalProcess/ DrugInnovation/default.htm. 22 The average market exclusivity period for a brand name drug is almost 13 years. Henry Grabowski, Genia Long, and Richard Mortimer, “Brief Report: Recent Trends in Brand-Name and Generic Drug Competition,” Journal of Medical Economics 17, no. 3 (2014): 207–14. TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE 11 the US Census. We then merged the weighted off-patent generic (i.e., generic multiple source data to develop and rank a weighted master list [GMS] or non-innovator multiple source [NMS]). by prescription volume and sales at the National We then grouped all NDC numbers by the Drug Code (NDC) level for the new AARP market Generic Product Indicator (GPI) code into GPI- baskets. patent status groups using the GPI code from Price Rx Pro®. The GPI combines drug products This process was repeated using 2014 data into a common group when they have the same provided by the same data sources. The 2014 active ingredients, dosage form, and strength—a market basket is the basis of this report and the single GPI includes the NDCs for any package 2015 through 2017 Rx Price Watch reports. type and size and from all manufacturers. Our selection of the market basket of drugs to When patent status is combined with the GPI track in the price index was a multistep process. categories, each GPI will typically be either a First, prescriptions covered and adjudicated by single source GPI (GPI-brand single source) or the commercial entities included in the merged a multiple source GPI with both a GPI-brand data set were grouped by NDC number. The multiple source group and a GPI-generic multiple NDC is a number that refers to a specific drug source group. product presentation with a unique combination The next step involved summing the total of active chemical ingredient, strength, dosage expenditures, number of prescriptions form, package type and size, and manufacturer dispensed, and days of therapy provided across (e.g., Nexium [esomeprazole magnesium] 40 mg, all NDCs within each GPI-patent status group. capsule, bottle of 30, AstraZeneca). As a result, The NDCs within each GPI-patent status group some drug entities (i.e., molecules) could appear were then rank ordered based on total annual more than once among the widely used drug expenditure for each NDC. The designated products (e.g., when there are different strengths, “representative NDC” was the NDC that had such as Lipitor 10 mg, Lipitor 20 mg, and Lipitor the highest level of expenditure within each 40 mg). For each NDC, we calculated total sales GPI-patent status group. If the NDC with the revenue from adjudicated prescription claims, greatest expenditure level was inactive, then the including the patient cost-sharing amount, as well NDC with the next highest level of expenditure as the total prescriptions dispensed, the total units became the representative NDC. supplied, and the total days of therapy provided during 2014. This analysis excluded less than 0.5 percent of the expenditures and the prescriptions because The next step involved merging the use and they were for nondrug items. These nondrug expenditure data from the Truven Health items included devices, medical and diabetic MarketScan® Research Databases and the supplies, syringes, compounding service fees, Medicare Part D plan provider by NDC code and and other professional services. After exclusion then linking the data with descriptive information of nondrug items, the 2014 data set contained from Medi-Span’s Price Rx Pro® drug database,23 36,866 NDCs grouped into 6,085 GPI-patent using the NDC number as the key linking status categories. variable. The descriptive data from Price Rx Pro® included drug product information such as brand We then coded all GPIs to distinguish the name, generic name, manufacturer, patent status, specialty prescription drugs from other regular, package size, route of administration, usual dose, or traditional, prescription drugs. The definition therapeutic category, usual duration, and each of specialty prescription drugs used here is a price history. prescription drug that is (1) administered by injection, such as intravenous, intramuscular, All NDCs were classified by the patent status of sub-cutaneous, or other injection site (not the drug product presentation—that is, patented including insulin); (2) a drug product approved brand name (i.e., brand single source [SS]), off- by the FDA through a BLA (biological license patent brand name (i.e., brand multiple source application); (3) any drug product that has a total [BMS] or innovator multiple source [IMS]), and average prescription cost greater than $1,000 23 Price Rx Pro® is a product of Medi-Span (Indianapolis, IN), a division of Wolters Kluwer Health, Inc., and is based on data from Medi-Span’s MDDB®. 12 TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE per prescription; or (4) any drug product that from a Medicare Part D plan provider for 2006 has a total average cost greater than $33 per and manufacturer drug price changes measured day of therapy. The drug products meeting this using WAC data from the Medi-Span Price-Chek definition were considered “specialty drugs” and PC database. The AARP Public Policy Institute all other prescription drugs were considered and the University of Minnesota’s PRIME “regular,” “traditional,” or “nonspecialty” drugs. Institute collaborated to develop a new retail Throughout this report, references to the market drug price index known as the Rx Price Watch basket of drugs refer to the regular (nonspecialty) reports, based on retail-level prescription prices drugs unless otherwise indicated. Only specialty from the Truven Health MarketScan® Research drugs provided through a Medicare Part D Databases. This retail price index allows the program or under a prescription drug benefit AARP Public Policy Institute to assess retail program are included. The specialty drugs prices actually paid by consumers or insurers provided under Medicare Part B, or under a and to determine whether the rebates and commercial health plan and administered in a discounts sometimes given to payers are being clinic or physician’s office and billed as a medical claim, are not included in this data set or this passed along to consumers. analysis. Retail Data Description All NDCs were classified by the patent status of The Truven Health MarketScan® Research the drug product presentation—that is, patented Databases comprise 12 fully integrated claims brand name (or SS), off-patent brand name (or databases, and contain the largest collection IMS), or off-patent generic (NMS). We classified of privately and publicly insured, de-identified both the regular and the specialty drug data sets patient data in the United States.24 The warehouse by patent status. features an opportunity sample from multiple We sorted the list of all GPI-patent status groups sources (employers, states, health plans), more in the merged data set for 2014 by three criteria: than 20 billion patient records, and 196 million (1) total prescription expenditures, (2) number covered lives since 1995.25 The data used in the Rx of prescriptions dispensed, and (3) days of Price Watch analyses are drawn from the Truven therapy provided. The top 500 GPI-patent status Health MarketScan® Commercial Claims and categories were identified for each of these three Encounters Database (Commercial Database) and criteria. Because some GPI-patent status groups the Truven Health MarketScan® Supplemental appeared in more than one of these top 500 and Coordination of Benefits Database (Medicare lists, the combined list of all GPI-patent status Supplemental Database). groups totaled 627. There were 267 brand name The Truven Health MarketScan® Commercial GPI-patent status groups (i.e., both brand single Database consists of employer- and health plan- source and brand multiple source) and 390 generic sourced data containing medical and drug GPI-patent status groups. Also, 97 GPI-patent data for several million individuals annually. status groups in this combined top 500 list were It encompasses employees, their spouses, and classified as specialty drugs. dependents covered by employer-sponsored The three market baskets (brand name, generic, private health insurance. Health care for these and specialty drugs) combined accounted for individuals is available under a variety of fee- 83.0 percent of all prescription drug expenditures for-service (FFS), fully capitated, and partially and 82.8 percent of all prescriptions dispensed to capitated health plans. These include preferred those over age 50 in 2014. provider organizations (PPOs) and exclusive provider organizations (EPOs), point of service MONITORING RETAIL DRUG PRICES (POS) plans, indemnity plans, health maintenance The original Rx Watchdog reports were based on organizations (HMOs), and consumer-directed market baskets of drugs constructed using data health plans.26 24 Danielson, “White Paper.” 25 Danielson, “White Paper.” 26 Danielson, “White Paper.” TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE 13 The Truven Health MarketScan® Medicare CALCULATING ANNUAL PRICE CHANGES FOR Supplemental Database is composed of data from EACH DRUG retirees with Medicare supplemental insurance This Rx Price Watch report calculates average sponsored by employers or unions. In 2010, 14 retail price changes for drug products in the percent of the 46.5 million Medicare beneficiaries following ways: received their drug benefits through a retiree coverage plan.27 The Truven Health MarketScan® • The annual point-to-point percent change in retail price is the percent change in price Medicare Supplemental Database includes the for a given month compared with the same Medicare-covered portion of payment, the month in the previous year (e.g., January 2017 employer-paid portion, and any patient out-of- pocket expenses. The database provides detailed v. January 2016, February 2017 v. February cost and use data for health care services 2016). performed in both inpatient and outpatient • The 12-month rolling average percent change settings. in retail price is the average of the point-to- The retail price data drawn from the Truven point changes over the preceding 12 months. Health MarketScan® Commercial Database For example, the average annual retail price and Truven Health MarketScan® Medicare changes for 2017 refer to the average of the Supplemental Database had to meet several annual point-to-point price changes for each conditions in order to be included in the of the 12 months from January 2017 through analysis: December 2017 compared with the same months in 2016. 1. Claimant must be age 50 or older We calculated average annual price changes 2. Claim must have a value of greater than zero for each drug product for each month and year in the following fields: that the drug was on the market from 2006 to 3. Total payment amount 2017. The first step was to calculate the annual point-to-point percent change for each month by a. Metric quantity comparing the price in a specific month with the b. Ingredient cost same month in the previous year (e.g., January 2017 v. January 2016, February 2017 v. February c. Days’ supply 2016). The next step was to calculate the average d. Average wholesale price of these annual point-to-point changes for the 12 months in each calendar year. For example, e. Payment amount cannot be less than 100 average annual price changes for 2017 refer to percent of the ingredient cost the average of the annual point-to-point price 4. Claim must come from a noncapitated health for each of the 12 months in 2017. This 12-month plan. rolling average tends to be a more conservative estimate of price changes than the point-to- Truven Health Analytics then combined the two point method (i.e., a simple percentage change databases and provided the AARP Public Policy for a single month from the same month in Institute with data sets that included the monthly the previous year), and it accounts for seasonal median (as well as the 25th and 75th percentile) variations in drug manufacturers’ pricing retail price from January 2005 through December policies. 2017 for all of the drug products in the Rx Price Watch market baskets. We then compiled the Table A-1 shows how 12-month rolling average monthly median retail prices in spreadsheets price changes are calculated. Suppose, for designed to track price changes for each of the example, that drug A had the following pattern drug products in the AARP market baskets. of price changes in 2017 when compared with the same month in 2016: 27 Danielson, “White Paper.” 14 TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE Table A-1. Average Annual Percent Change in Price for Hypothetical Prescription Drug A, 2017 AVERAGE May 16– Nov 16– Aug 16– Dec 16– Sep 16– Feb 16– Mar 16- Apr 16– Oct 16– Jun 16– May 17 Jan 16– Nov 17 Mar 17 Aug 17 Dec 17 Sep 17 Jul 16– Feb 17 Apr 17 Oct 17 Jun 17 Jan 17 Jul 17 2.0 2.0 2.0 2.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 2.67 In this example, the retail price of drug A was A straight average, however, does not account for 2 percent higher than the price for the same the actual impact of price changes because it does months in the previous year, for the period from not account for each product’s “weight” (or share) January through April 2017. A price hike in May within the sample (i.e., it gives equal weight to increased the percentage difference to 3 percent price changes of both commonly used drugs and for each of the subsequent months in 2017. The drugs that are used less frequently). As a result, 12-month average of these price differences is it does not accurately capture the average impact (2.0 + 2.0 + 2.0 + 2.0 + 3.0 + 3.0 + 3.0 + 3.0 + 3.0 + of price changes in the marketplace. In Table A-2, 3.0 + 3.0 + 3.0)/12, or 2.67 percent.28 drugs with low price increases in percentage terms (drugs E and J) account for a small share (7 percent) CALCULATING AGGREGATE AVERAGE PRICE of total 2014 sales for the specific group of drugs CHANGES ACROSS MULTIPLE DRUGS analyzed. By contrast, drugs with the highest To aggregate price changes for multiple drugs, we percentage changes (drugs B, D, and I) account for calculated a weighted average of price changes a much larger share (37 percent) of sales. To reflect by weighting each drug’s annual price change the relative importance of each drug’s price change (calculated from the Truven Health MarketScan® in the market basket of products, we weighted each Commercial Database and the Truven Health annual price change by the drug’s share of total MarketScan® Medicare Supplemental Database, 2014 sales. In this simple example, the weighted as shown in the hypothetical example in Table average price increase in 2017 is the sum of A-1) by its share of total 2014 prescription sales (Unweighted average price change for drug A × drug within its given market basket (i.e., brand name, A’s share of total sales) + generic, specialty, or combined). As an example, (Unweighted average price change for drug B × drug Table A-2 shows that the sample from which B’s share of total sales) + drug A was drawn has 10 drugs (we chose this small sample size to simplify this illustrative (Unweighted average price change for drug C × drug example). The second column of Table A-2 gives C’s share of total sales) + the average annual price change for each of these + (Unweighted average price change for drug J × drug drugs, denoted as drugs A through J. A straight J’s share of total sales), (or unweighted) average, which adds up individual or values and divides by the number of drugs, would result in an average annual price change of 4.76 (2.67 × 0.15) + (10.0 × 0.14) + (2.67 × 0.07) + … + (1.0 percent for the drugs in this hypothetical sample. × 0.02). Assuming the hypothetical changes in the dollar The results of this calculation are in the fifth cost of therapy for these drugs, shown in the third column of Table A-2, which shows that the column, the straight average change in the annual weighted annual average price change for the cost of therapy would be $236.13. drugs is 5.22 percent, or approximately one-half 28 If the drug was introduced to the market in July of the previous year, then the price change for the given year is averaged using only the six months that the product was on the market in the previous year (i.e., July through December). TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE 15 Table A-2. Average Changes in Price and Cost of Therapy for 10 Hypothetical Prescription Drugs, 2017 Unweighted Weighted Unweighted Average Change Weighted Average Change Average Annual in Cost of Average Annual in Cost of Price Change Therapy Share of Total Price Change Therapy Drug Name (%) ($/year) Sales (%) ($/year) A 2.67% $623.48 15% 0.40% $93.52 B 10.00% $108.68 14% 1.40% $15.22 C 2.67% $433.68 7% 0.19% $30.36 D 8.00% $54.08 10% 0.80% $5.41 E 1.50% $162.76 5% 0.08% $8.14 F 4.33% $54.08 14% 0.61% $7.57 G 6.40% $216.84 2% 0.13% $4.34 H 3.25% $433.68 18% 0.59% $78.06 I 7.80% $27.04 13% 1.01% $3.52 J 1.00% $247.00 2% 0.02% $4.94 TOTAL 4.76% $236.13 100% 5.22% $251.07 a percentage point higher than the unweighted the analysis in the month before they entered average of 4.76 percent. The weighted dollar the market and for all previous months, and change in the annual cost of therapy would be recalculated the weights of the products present $251.07, compared with the unweighted average in the market prior to 2014 to reflect their relative dollar change of $236.13. share of the total sales as adjusted to reflect only drugs on the market during that period. CALCULATING AVERAGE PRICE CHANGES For example, suppose that drugs I and J in Table ACROSS MULTIPLE DRUGS FOR YEARS A-2 were not on the market in 2011. Furthermore, BEFORE 2014 assume that total drug spending in 2014 was The process for aggregating price changes for $100,000. To capture the loss of drugs I and multiple drugs pre-2014 is similar to that for 2014. J from the analysis for 2011, the weights are Average price changes for 2006 through 2013 were redistributed across the drugs that remain in the derived by first calculating the rolling average analysis (drugs A through H); the new weights annual price change for each drug (as shown are still based on their 2014 sales but as a share in Table A-1), then weighting each drug’s price of total sales for the smaller number of drugs change by its share of total sales in the sample. in the analysis for the year. In this example, the The weights used for all years in this study are total 2014 sales of drugs on the market in 2011 from 2014 sales from the Medicare Part D plans would be $85,000 without drugs I and J. Drug A’s of a Medicare Part D plan provider, including $15,000 in sales, which represented 15 percent of the AARP plans, as well as from the Truven sales for all 10 drugs, rises to 18 percent of sales Health MarketScan® Commercial Database, when I and J are excluded. This weight, along and the Truven Health MarketScan® Medicare with the analogous weights for drugs B through Supplemental Database. The 2014 weights keep H, was used to derive the weighted average price the market basket constant over time so that the change for 2011 (see Table A-3). change in prices would be a function of price Weighting the previous years’ price changes by changes alone and not a function of changes in 2014 sales potentially creates a bias relative to market basket utilization or mix. using each specific year’s sales as the basis for However, some drugs that were in the 2014 assigning weights for that year. Using 2014 sales sample were not on the market in all earlier gives more weight to drugs that, relative to other years. We dropped these drug products from drugs, had high rates of sales growth in 2014 or 16 TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE Table A-3. Recalculating Weights When Prescription Drugs Drop Out of the Sample 2014 Weights 2011 Weights 2014 Dollar Sales of Share of 2014 Dollar Value of Drugs on Market in 2014 Share of Drugs Drug Name Sales 2014 Sales 2011 on Market in 2011 A 15% $15,000 $15,000 18% B 14% $14,000 $14,000 16% C 7% $ 7,000 $ 7,000 8% D 10% $10,000 $10,000 12% E 5% $ 5,000 $ 5,000 6% F 14% $14,000 $14,000 16% G 2% $ 2,000 $ 2,000 2% H 18% $18,000 $18,000 21% I 13% $13,000 − − J 2% $ 2,000 − − TOTAL 100% $100,000 $85,000 100% earlier years compared with the year analyzed. DEFINING MANUFACTURER In general, however, newer drugs initially have We defined a drug manufacturer as the firm higher rates of sales growth, but relatively lower marketing the drug product under its corporate rates of price growth, than do older drugs. This name in 2014. If a listed manufacturer is a division pattern occurs both because newer drugs may of another firm, we defined its drugs as marketed have been introduced at higher prices and because by the parent firm. This includes cases in which price increases for brand name drugs tend to the firm marketing a drug product may have accelerate in rate and amount closer to the end of changed over time due to mergers and acquisitions, a product’s effective patent life. divestitures of specific drug products, or for other reasons. The analysis of drug manufacturers CALCULATING ANNUAL COST OF THERAPY reported separately on manufacturers with at least FOR A DRUG PRODUCT two drug products (at the NDC level) among the To assess the impact of price changes on dollars most widely used drugs. spent, we calculated an annual cost of therapy for each drug product. This annual cost of therapy DEFINING THERAPEUTIC CATEGORY analysis excludes drug products in the market Drug products can be classified by the therapeutic basket that are used primarily for treatment of purpose for which they are used. If a drug has acute conditions or that are typically taken for a multiple uses, the most common indication limited period of time. The amount of a drug that typically becomes the classifier. To group drug an average adult would take on a daily basis was products in this study into similar therapeutic determined using the “usual daily dose” reported categories, we used Medi-Span’s therapeutic in the Medi-Span Price Rx Pro® database. When coding scheme, known as the GPI code. this information was not available from Medi- Span, we used dosing information in the FDA- The therapeutic categories used in this study approved labeling for the drug product. The use an intermediate GPI-level code that specifies weighted average annual cost of therapy was also the groupings of similar chemical entities such calculated using the 2014 sales volumes to weight as “Proton Pump Inhibitors.” A brand name the annual cost of each drug product to produce therapeutic category may include drug products the aggregate annual cost of therapy across all that are brand single source or brand multiple drug products in the study’s market basket. source. TRENDS IN RETAIL PRICES OF PRESCRIPTION DRUGS WIDELY USED BY OLDER AMERICANS: 2017 YEAR-END UPDATE 17 Research Report 2019-18, September 2019 © AARP PUBLIC POLICY INSTITUTE 601 E Street, NW Washington DC 20049 Follow us on Twitter @AARPpolicy on facebook.com/AARPpolicy www.aarp.org/ppi For more reports from the Public Policy Institute, visit http://www.aarp.org/ppi/. https://doi.org/10.26419/ppi.00073.003