Comparison of Price Index Methods and Drug Price Inflation Estimates for Hepatitis C Virus Medications

Abstract

Measuring drug price inflation is challenging because new drugs continually enter the market, some drugs transition from branded to generic, and current inflation indexes do not account for these market basket changes. Instead, they measure the price increases after new drugs have been launched. Therefore, the public pays the higher costs of newer and usually more expensive drugs, but the inflation indexes do not reflect the increases over existing drugs previously used to treat the same conditions. To assess how price index methods can affect estimates of drug price inflation using a case study of hepatitis C virus (HCV) medication and to explore other approaches for constructing a price index. This cross-sectional study used data from outpatient pharmacies to compile a list of all HCV medications that were ever on the market (brand and generic) from 2013 to 2020. Using National Drug Codes of HCV drugs, a 20% nationally representative sample of Medicare Part D claims from 2013 to 2020 was queried. Alternative drug price indexes, including product-level vs class-level product and quantity definitions were developed in which gross vs net price definitions were used and an adjustment was created and applied to capture treatment duration because newer drugs often required a shorter duration. Price index value and rate of inflation from 2013 to 2020 for each methodologic approach to constructing a drug pricing index. In all, 27 different HCV drug regimens were identified in Medicare Part D claims in 2013 to 2020. A product-level approach for measuring inflation estimated a 10% gross drug price increase from 2013 to 2020 for HCV drugs, whereas a class-level approach including the higher prices of the new drugs showed a 31% gross price increase. After adjusting for manufacturer rebates to estimate net prices, the findings showed that HCV drug prices fell by 31% from 2013 to 2020. The findings of this cross-sectional study indicate that the current product-level methods to estimate drug price inflation underestimated price increases for HCV drugs by failing to include the high launch prices of new market entrants. Using a class-level approach, the index captured higher spending on new products at launch. Prescription-level analyses, which did not consider shorter durations of treatment, overestimated price increases.