The drug pricing feast: Who's getting their fill this month?

As a non-profit, we at 46brooklyn have made it our goal to provide insights into U.S. drug pricing data available in the public domain based upon the figures we’ve gathered over the prior month. This month is of course no different, except perhaps that this report that reviews the latest drug pricing changes from the month October is coming out a little later than we like. Nevertheless, better late than never. We hope your bellies have room for all this leftover drug pricing stuffing, because it’s well worth the calories.

The latest news

From a drug policy standpoint, on November 26, 2024, President Joe Biden proposed expanding Medicare and Medicaid to cover anti-obesity medications, such as Novo Nordisk's Wegovy and Eli Lilly's Zepbound. This initiative aims to reduce out-of-pocket expenses for millions of Americans (though the impact to government finances for the program are likely to be added costs based upon the experience of other payers). The proposal is set to take effect in 2026, pending approval from the incoming administration. Of course, all of that is in the far future as it relates to drug pricing current events, but as this news broke just before the holidays, we highlight it here in case you missed it.

The other news from last month was the long-anticipated release of the Minnesota Department of Health report on the ins and outs of the 340B program. We recommend reading up on Brian Reid’s take on the report over at Cost Curve. We will be digging a bit more into 340B over the coming months, given the uptick in interest (and program size), so stay tuned as we weave some of this report’s insights into our future pieces.

Of course, the big news before the holiday break was the Wall Street Journal’s deep-dive into our analysis of disparate drug prices in the Medicare Part D program. Reporters Jared Hopkins, Josh Ulick, and Taylor Umlauf did a great job distilling a lot of complicated drug pricing data into a coherent and digestible piece – that is, if your stomach can handle $60 drugs going for more than $7,000. Much more to come on this data as well.

The Cliff Notes from last month’s drug price changes

For our analysis of October, there were a net 36 brand drug list price increases in October, with price changes impacting relatively infrequently-utilized products, like Doryx (a branded doxycycline product with less than $1,000 on the low end of gross prior year Medicaid expenditures [PYME]), up to more meaningful medications with a lot of annualized expenditures like Jakafi ($271 million in PYME), Jynarque ($239 million in PYME), or Tysabri ($219 million in PYME).

As in months prior, we see prices changes all over the board – some of which can be just a few hundred dollars, whereas others are hundreds of millions of dollars. In October, some medications have as low as a -42% price decrease and as high as 16.8% increase.  Depending on the price of a medication, even a small overall percentage change could be substantial enough to be thousands or even millions of dollars compounded over time. 

In October, Zituvimet and Valstar took price decreases (relatively unutilized drugs, as they have $0 PYME). Some of the biggest and/or most interesting movers to take note of for October 2024 were:

·      Jakafi (ruxolitinib) with a 1.8% WAC price increase impacting $271 million in PYME

·      Jynarque (tolvaptan) with a 5% WAC price increase impacting $239 million in PYME

·      Tysabri (natalizumab) with a 4% WAC price increase impacting $219 million in PYME

·      Livmarli (maralixibat) with a 6% increase impacting $102 million in PYME

Based upon these price increases and the PYME, the most impactful price change this past month is likely to be Jynarque. This is because if we multiply the list price increase by the PYME, we get the greatest estimated increases in gross expenditures to the Medicaid program. Of course, this is all before Medicaid rebates and the potential generic launch of Jynarque in 2025. But, it is important to note that sometimes a small percentage increase – especially for an already expensive brand medication – can result in a significant jump in expenditures.

Of course, these numbers are just part of the drug pricing context for these drugs. The figures presented above are the prices before drug channel mark-ups (hospital chargemasters, 340B providers, PBMs, GPOs, wholesalers, pharmacies, etc.) and more importantly, drugmaker rebates, which as we know are growing significantly over time and are at their largest amounts in the Medicaid and 340B programs.

On the generic drug side of the coin, year-over-year (YoY) generic oral solid price deflation is at 7.3%, as quantified by national average drug acquisition cost (NADAC). This is basically unchanged from last month. While there has been some online chatter on how some of the recent fluctuations are some sort of evidence of substantial flaws with NADAC, we’re not sure we agree, considering the benchmarks value relative to other distorted pricing lists. If, as some claimed, the major bouncing changes to NADAC were a result of recent methodology changes, then, all else being equal, the impact of those changes should have resolved (i.e., month-over-month swings cannot be reasonably explained by methodology changes that occurred once; the impact of those changes should have been felt only once, with a new normal moving forward). Rather, it seems more likely that other sources are responsible for NADAC’s recent zig-zags.

The most obvious cause of NADAC’s new “volatility", in our mind, is the impact of inconsistent survey participation. CMS seems to have confirmed that based upon the NADAC survey landing page:

Readers should note this message seems to relate to November trends – not October – but worry not, as we preview those below given this message and our delay in getting the October report out until after the November survey was published.

So while we recover from stuffing our faces, make sure to keep come back in the coming weeks to see what November had in store fully for drug price changes. But for now, let’s take inventory of everything that happened in October.

What we saw from brand-name medications in October

1. A mild number of brand drug list price changes

There were a total of 38 brand-name medications that saw wholesale acquisition cost (WAC) price increases in October and two that decreased, which is featured and contextualized in our updated Brand Drug List Price Change Box Score.

Price changes this month ranged from -42% (a price decrease) to 16.8% and impacted $1 billion in gross prior year Medicaid expenditures (PYME).  As a reminder, brand list price increases in Medicaid are largely held in check thanks to the Medicaid Drug Rebate Program (MDRP), which has mandatory discounts along with rebate penalties for drug price increases that occur faster than the rate of inflation. This is one of a number of reasons that solely analyzing brand list price changes provides an incomplete picture of what’s really happening with brand manufacturer economics, thanks to the growing lot of opaque rebates, discounts, and giveaways that drugmakers shave off those list prices. But alas, until PBMs, insurers, wholesalers, 340B covered entities, and rebate aggregators make more granular data on net prices public, we’ll continue working with what we’ve got.

2. Brand price trends over time

Figure 1
Source: Elsevier Gold Standard Drug Database, CMS State Drug Utilization Data, 46brooklyn Research

To help contextualize brand name drug list price increase behavior, we find it beneficial to review past trends.  In comparison to the data from prior months of October, in October 2023 there were 27 (combined increase and decreases) branded price changes.  The highest number occurred in October 2014 with 92 net branded price increases, whereas the lowest is October 2018 when there were just 15 price increases.

To put it into a more recent perspective, there were a net (increases and decreases) of 27 medications in October 2023, 41 in October 2022, 41 in October 2021, and 30 in October 2020. All of this is to say 2024 seems to be pretty much in line with what previous Octobers look like for brand drug price changes.

Moreover, of the drugs that took increases so far this year, the median price increase has been 4.5% – a percentage that has been holding steady without much fluctuation since 2019 (see Figure 1 or Stat Box #3 within the dashboard). The weighted average remains at historic lows thanks to the big price cuts on insulins and inhalers that occurred at the start of the year.

3. Brand drug list price changes worth taking note of in August

While we have thus far focused on the aggregate brand drug picture, next we identify specific brand drugs worth taking note of in a couple different ways. Primarily, we look for medications with a lot of prior year gross Medicaid expenditures (PYME). We next look for drugs with large pricing changes (+/- 10%). And finally, we look for drugs that are interesting to us either because we’ve previously written on them, they’ve recently been in the news, or because we find them of unique clinical value. This month, when looking for these drugs in the brand arena, we found several worth mentioning based upon these reasons:

Cancer

Jakafi (ruxolitinib), a medication used to treat certain types of cancer and blood cell disorders took an increase in WAC of 1.8%, impacting $271 million in gross prior year Medicaid expenditures (PYME).

Kidney Disease

Jynarque (tolvaptan) is used to slow the decline of kidney function in adults with autosomal dominant polycystic kidney disease (ADPKD). This medication took a 5% WAC price increase, impacting $239 million in PYME.

Multiple Sclerosis

Tysabri (natalizumab) is a monoclonal antibody used to treat adults with multiple sclerosis that is not controlled by other treatments or whose condition is rapidly worsening. It took a 4% WAC price increase, impacting $219 million in PYME.

Other

Livmarli (maralixibat) is a medication used to treat itching in people who have Alagille syndrome (ALGS) or progressive familial intrahepatic cholestasis (PFIC). This medication took a 6% increase, impacting $102 million in PYME.

Of course, our update doesn’t end with brand medications. While brand drugs represent the majority of payer costs, patients overwhelmingly take generic medications, which means we cannot overlook what is going on with them.

What we saw from generic medications in October

4. A relatively flat, unweighted price change picture

Each month, we start our evaluation of generic drug price changes by looking at how many generic drugs went up and down in the latest month’s survey of retail pharmacy acquisition costs (based on National Average Drug Acquisition Cost, NADAC), and compare that to the prior month. Basically, the quick way to read Figure 2 below is to look for orange bars that are taller than blue bars to the left of the line, and exactly the opposite to the right of the line. That would indicate a good month – more generic drugs going down in price compared to the prior month, and less drug prices going up.

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Figure 2
Source: Data.Medicaid.gov, 46brooklyn Research

For every generic drug that increased in its NADAC price this month, 1.5 decreased in price (which is to say on an unweighted basis there was more generic deflation than inflation on a per product basis in October).  As usual, take this unweighted price change analysis with a grain of salt. To really make heads or tails of all of these pricing changes, let’s weight these changes.

5. Weighted Medicaid generic drug costs come in at $51 million in deflation

The purpose of our NADAC Change Packed Bubble Chart (Figure 3) is to apply utilization (drug mix) to each month’s NADAC price changes to better assess the impact. We use Medicaid’s most recent year of drug mix from CMS to arrive at an estimate of the total dollar impact of the latest NADAC pricing update. This helps quantify what should be the real effect of those price changes from a payer’s perspective (in our case Medicaid; individual results will vary).

The green bubbles on the right of the Bubble Chart viz (screenshot below in Figure 3) are the generic drugs that experienced a price decline (i.e. got cheaper) in the latest survey, while the yellow/orange/red bubbles on the left are those drugs that experienced a price increase. The size of each bubble represents the dollar impact of the drug on state Medicaid programs, based on utilization of the drugs in the most recent trailing 12-month period (i.e. bigger bubbles represent more spending). Stated differently, we simply multiply the latest survey price changes by aggregate drug utilization in Medicaid over the past full year, add up all the bubbles, and get the total inflation/deflation impact of the survey changes.

Figure 3
Source: Data.Medicaid.gov, 46brooklyn Research

Overall, in October, there was just over $69 million worth of inflationary drugs, with $119.9 million of deflationary generic drugs, netting out to approximately $51 million of generic drug cost deflation for Medicaid. All of this is to say is that the signal we got with the unweighted picture above (Figure 2) would seem to be confirmed (at least insofar as the number of generic drugs decreasing in price overlapped to a reasonable degree with the generic drugs typically taken by most folks).

Now, given the CMS warning and our slight delay in getting this report out, we couldn’t help but look at what November 2024 looked like. And so as way of an earlier spoiler for this coming month’s report, we find that generic deflation is going to grow over 10x from October to November (Figure 4 below):

Figure 4
Source: Data.Medicaid.gov, 46brooklyn Research

As can be seen above, the November 2024 NADAC survey has resulted in the single biggest NADAC deflation we have observed thus far (and we have already made that statement once this year, back in April). We think this observed deflation explains the need for CMS put the warning statement up that we highlighted in the introduction to this article; however, it doesn’t really explain why this is happening. We say this based upon other statement’s CMS has on its website and the NADAC FAQ. For example, when previously asked if there were regional differences in pharmacy acquisition costs, CMS stated that regionality would not appear to be present in the data:

Furthermore, when previously asked, “Why did CMS decide to have one NADAC when it is known that costs can vary considerably between chain and independent pharmacies?”, CMS had stated that their observations did not support variation along these lines:

In some ways, these prior statements would seem to undermine CMS’ red-lettered warning about survey participation. If these above statements are still true, then why would an “increase in survey participation” be the cause of NADAC deflation going up 10x in one month? To be fair, the CMS statements we’re relying upon (even though they appear to be the current FAQ) are based upon data analyzed from 2012. If you’re wondering if it’s possible that the pharmacy market looks different today than it did 12 years ago – take it from us, who started 46brooklyn in 2018 – the permanence of prescription drug marketplace as it exists at any given time can resemble the longevity of a turkey: even three to four years can be a lifetime.

While we are relying upon the current NADAC FAQ from CMS, we could not actually find any data CMS shared regarding these historic analyses that supported CMS’ position (i.e., we don’t know what analyzed invoice acquisition cost data actually showed back in 2012, and to what degree of confidence that data led CMS to its conclusions), but perhaps it signals that its worth re-checking these items after a decade-plus and perhaps sharing what they observe in regards to differences between chain and independent pharmacies acquisition costs? If for no other reason than to perhaps understand what is going on with pharmacy wholesaling agreements to lead to such potentially disparate prices in acquisition costs based upon who, or how many, pharmacies participate in the survey.

To be more direct, if CMS isn’t monitoring ongoing changes in marketplace dynamics that could change the nature of what NADAC is, then that would be a great disservice to the intended value NADAC was supposed to provide to Medicaid programs and others who utilize the benchmark as a proxy for drug pricing reality. Because we have better faith in CMS than that we believe it is incumbent on all parties to be more publicly forthcoming with their survey participation dynamics and data learnings, such that a dated 2012 no longer does the talking for what will soon be a 2025 world.

And for the sake of clarity, do not misconstrue these comments as wholesale criticism of NADAC. NADAC remains, in our opinion, the best gauge of pharmacy acquisition costs. However, as NADAC has moved from a fringe reimbursement price in the 2016-2017 timeframe to a more recognized and widespread benchmark, increased scrutiny of NADAC is to be expected (and likely that as the pharmacy market evolves, updates to ensure historic understandings remain accurate will need to be made). Which honestly, gives us an ability to highlight another one of the FAQ responses, which we interpret to mean NADAC alone, and without the context of a professional dispensing fee, is a potentially problematic way to view drug prices:

When we look at the average NADAC value per generic prescription in October (based upon Medicaid SDUD within the packed bubble chart), we’re seeing approximately $31-$33 per prescription is NADAC cost. A deflation of ~7% (see below) is a reduction of approximately $2 per prescription. Of course, when we compare that against a $43-45 per Rx costs (NADAC plus a professional dispensing fee of $12), that $2 reduction is a 5% reduction (not a 7% reduction). So the degree of prescription drug prices resulting from NADAC deflation will always be a reflection of reimbursement methods (and whether they include dispensing fees or not).

What this means is that these drops in NADAC without a corresponding recalibration of pharmacy dispensing fees by Medicaid programs or PBMs who use NADAC as their mechanism for determining drug ingredient costs, leaves pharmacies with material decreases in profitability on impacted claims (see Walgreens disclosure). On the flip side, pharmacy’s loss is the payer’s gain, since NADAC usually is used in a pass-through capacity. So while this recent “volatility” in NADAC’s output may give an impression of some form of harm to payers, the truth is that these recent drops have largely occurred to the benefit of the plan sponsors who rely upon its use. Pharmacies in NADAC-based contracts with set dispensing fees take the cut, and payers in NADAC-based contracts get the windfall of savings. In some ways, while these NADAC swings are irregular, the end results arguably are not: in recent history, amid times of marketplace change, the only constant is increased financial burden for community pharmacies (outside 340B, that is).

6. Year-over-year generic oral solid deflation at 7.3%

Ever since June 2020, we have been tracking year-over-year deflation for all generic drugs that have a NADAC price. We once again weight all price changes using Medicaid’s drug utilization data. This month, deflation on oral solid generics and all generics decreased to 7.3% and 7.6%, respectively (Figure 5). If you are a purchaser of generic drugs, an increase in this metric is ideal as it means costs are declining. Businesses generally enjoy it when their input costs go down. Historically, NADAC deflation numbers have been much higher than they’ve been recently; however, since April 2024, they have started to trend back up for the most part.  The numbers for October’s data (like September) continue to be more in line with historical trends dating back to 2021.  The percentages that we saw in July and May (and will see in November) seem to be the exception and not the rule, as the 20% and above range has not occurred in the last three years. 

Figure 7
Source: Data.Medicaid.gov, 46brooklyn Research

For those of you who have followed what is going on with broader U.S. market inflation, understand that part of what we’re measuring here is a comparison to the trend in pricing a year ago. This means that some months will have easier comparisons relative to harder comparisons. The cycle of “easy” to “tough” comparisons is something that plays a roll in aggregate deflation/inflation over time. We bring it up now to be sure that we’re fully contextualizing what is going on with generic drug prices. In September’s report, we tried to demonstrate with the month-over-month deflation how NADAC is a net march downward (even if it can bounce up and down sometimes). Don’t lose track of those facts when aggregating to a year basis (even if it isn’t as easy to zoom out). NADAC still is signaling that generic drugs are 7% cheaper than a year ago (if only all our inflation issues were trending in that way; we would be so lucky if our broader inflation fight followed generic drug deflation over the last year).

That’s all for this month!  Hope your Thanksgiving feast was enjoyable and that your holiday plans for the rest of the year are coming along nicely. Come back in the coming weeks to see which medication prices gifts we’re able to unwrap then at 46brooklyn.