Small price hikes make for big drug prices

When we talk about the high cost of drugs, we’re usually thinking about headline-grabbing prices for a new drug at launch. And it’s true that new drug prices are increasing very fast.¹

But there’s one little-remarked aspect of the rising cost of prescription drugs: With certain limited exceptions (e.g., Medicare), drug companies are free to set prices as high as the market will bear and then raise these prices any time they choose. And so they do; year after year.

As a result, most pharmaceutical revenue comes from these steady price increases for existing drugs over a period of years.²

This is a more serious problem than it might seem for two reasons:

1. Price increases for branded drugs continue to outpace inflation by a wide margin.
2. The compounding effect of multiple price increases over a period of years can result in significant cumulative increases – often with no corresponding improvement to the drug.³

The average list prices for many prescription drugs continue to outpace inflation. These are increases above and beyond the price set when a drug was launched.

One recent report showed more than 4,200 drugs had manufacturer list price increases from January 2022 to January 2023. Nearly half of these drugs had price increases that were higher than the rate of general inflation.⁴

Most recently, drugmakers announced that they will raise prices for at least 250 branded drugs to begin 2025. News stories emphasize that the median (half higher, half lower) price increase is only 4.5%.⁵ But let’s not forget that as of January 2025, the U.S. Consumer Price Index (CPI) was only 3%.⁶ So an increase of “only” 4.5% actually represents a 50% premium over the rate of inflation.

Most agree that average wages grew faster than inflation since 2020.⁷ However, if income does not increase as much as prices, people are still worse off.⁸  This is especially critical when prices grow faster than wages for the most important things people buy.

For example, between December 2019 and December 2024, housing prices rose by more than 25%, while food prices rose by nearly 30%.⁹ Now add prescription drugs rising by 42% for the same period (see below). This is a textbook example of how our standard of living can fall, even if wages are rising.¹⁰

A closer look will reveal the pernicious effects of “small” price hikes over time. Let’s take the drug Adcetris^® (brentuximab vedotin) for example. Adcetris is a monoclonal antibody drug that is used for several indications, including Hodgkin lymphoma.

Typically, Optum Rx formularies will require prior authorization to determine if it will be safe and effective in treating specific conditions. There is no biosimilar version of Adcetris.

In 2024 Adcetris had a retail price of approximately $11,740 per dose.¹¹ The maximum number of doses is 12, which means a course of treatment was approximately $141,000.¹² The manufacturer has raised the price for Adcetris by 3.9% for this year, which increases the annual cost of treatment by +$5,400.¹³

For simplicity sake we are ignoring the effect of discounts or rebates; and the impact to a patient will depend on their benefit plan design. But the fact remains that the gross cost to the plan sponsor will be $146,400 for a drug that used to cost $141,000.

But this is by no means the first price increase for Adcetris. In 2020, the price for Adcetris increased by just over 8% to $8,592.¹⁴ As the graph shows, the price has increased every year since then:

This is not really about Adcetris. As noted, there are thousands of other drugs besides Adcetris that continue to raise their prices.

If you are someone who has to pay for these drugs, the net result of constant price increases is decidedly bad. Between 2012 and 2017, price increases on existing brand name cancer drugs cost the U.S. an extra $6.8 billion. Over the same period, the rest of the world spent $1.7 billion less for similar drugs thanks to price decreases.¹⁸

But if you are a drug maker, the results are pretty good. As noted, annual price increases account for the majority of all pharmaceutical maker profits. And large pharmaceutical firms continue to be the most profitable businesses in the world.¹⁹  

PBMs are the sole effective system-wide mechanism that ensures pharmaceutical companies are held accountable for the prices they set.

Optum Rx plays a vital role in controlling drug spending while improving quality care. For example:

• Our vast purchasing volume offers leverage that helps us negotiate lower drug prices and keep annual price growth low. Look specifically at the blockbuster GLP-1 weight loss drugs. Johnson & Johnson recently estimated that, as an industry, drug makers are charging about 60% less for these drugs due to PBM negotiations.²⁰
• Our contracting strategies promote competition among drug manufacturers. Makers of similar products compete by granting price concessions appear on our formularies.
• Our formularies also proactively promote quality care through the decisions made by Pharmacy and Therapeutics (P&T) Committees. They are charged with reviewing the scientific evidence for each drug — before any cost considerations.
• Optum Rx is committed to providing end-to-end transparency, from evaluating and managing drugs, to formulary guidance and choice. One tangible sign of this commitment is our publicly stated commitment to have 100% pass-through of all rebates by 2028.

We have found that when our clients take full advantage of our managed savings strategies they save on average $25 PMPM of their prescription drug spending. These include adopting our premium formulary, comprehensive utilization management, Vigilant drug program, and variable copay program.²¹

Optum Rx remains focused on making high-quality, affordable healthcare more available to more people, while making the health system easier to navigate for our clients, patients and providers. Talk to your Optum Rx representative about how the power of partnership can help guide you and your members to meet the demands of today — and prepare for the future.