NADAC indicates National Average Drug Acquisition Cost.
eTable 1. Pricing and Manufacturer Data Among Topical Dermatologic Generics
eTable 2. Percentage Change in National Average Drug Acquisition Cost by Drug Category
Customize your JAMA Network experience by selecting one or more topics from the list below.
Li DG, Joyce C, Mostaghimi A. Association Between Market Competition and Prices of Generic Topical Dermatology Drugs. JAMA Dermatol. 2018;154(12):1441–1446. doi:10.1001/jamadermatol.2018.3798
Does an association exist between drug price and market competition among the topical dermatologic generic medications most commonly prescribed by dermatologists in the United States?
In this cost analysis of 116 topical dermatologic generic drugs (70.5% of Medicare Part D dermatologist-coded claims), there was an inverse correlation between drug price and number of manufacturers. Drugs with 1 to 2 manufacturers sustained a 33.2% higher median percentage increase in price than drugs with more than 6 manufacturers.
Policies that increase market competition among topical dermatologic generic drugs with a limited number of manufacturers may lead to long-term price reductions.
During the last decade, increases in drug prices for commonly prescribed dermatologic medications have outpaced the rate of inflation, national health care growth, and reimbursements. Among nondermatologic medications, studies have shown a role for robust generic market competition in reducing drug prices. The association between competition and the costs of topical dermatologic generic drugs has not been evaluated.
To characterize the association between changes in drug price and the number of US Food and Drug Administration (FDA)-approved manufacturers among the most commonly used topical dermatologic generic products.
Design, Setting, and Participants
This retrospective cost analysis of the most commonly prescribed topical dermatologic generic drugs used cumulative annual claims data from the Medicare Part D Prescriber Public User File to identify 597 dermatologist-prescribed drugs with more than 10 claims. The number of manufacturers and the price per unit were identified from the FDA Orange Book and the National Average Drug Acquisition Cost (NADAC) database, respectively, for 2013 through 2016. Drugs that were nondermatologic, were not topically administered, were missing NADAC data, were lacking a generic formulation, or had fewer than 400 claims were excluded.
Main Outcomes and Measures
Primary outcomes included per-unit drug price and number of FDA-approved manufacturers. Pricing measures were adjusted for inflation and are reported in 2016 dollars.
The present analysis included 116 topical dermatologic generic formulations, representing 70.5% of the total Medicare Part D dermatologist-coded claims from 2015. Drug formulations with 1 to 2 manufacturers during the study period sustained a median percentage increase in price of 12.7%, whereas those with more than 6 manufacturers had a median percentage decrease in price of 20.5%. Formulations with 1 to 2 manufacturers had a 20.6%, 19.5%, and 33.2% higher percentage increase in price than those with 3 to 4 manufacturers, 5 to 6 manufacturers, and more than 6 manufacturers, respectively. There was a statistically significant inverse association between the percentage change in drug price and median number of manufacturers (Spearman correlation coefficient, −0.26; P = .005).
Conclusions and Relevance
The negative association between the change in drug price and the median number of manufacturers of generic topical dermatologic drugs indicates a role for market competition in controlling the costs of generic drug prices within dermatology. These findings support policies that facilitate robust market competition among topical dermatologic generic drugs produced by a limited number of manufacturers.
Prescription drug spending within dermatology doubled from $7.4 billion in 2004 to $14.9 billion in 2013.1 During this period, the annualized increase in commonly prescribed dermatologic medications outpaced the rate of inflation, national health care growth, and physician service reimbursements.2,3 Although increases in total drug spending are frequently attributed to the introduction and market uptake of brand-name drugs, a substantial proportion of drugs prescribed by dermatologists (eg, approximately 97% under Medicare part D) are generic, and recent increases in cost within dermatology have been driven by higher costs per unit.4,5
Prior studies have described the role of market competition in reducing nondermatology generic drug prices. One study6 found that among generic oral antibiotics with 2 or fewer approved manufacturers, nearly half (46%) sustained price increases of 90% or more between 2013 and 2016. Meanwhile, among drugs with 3 or more manufacturers, only 7% had comparable price increases. In addition, data from the US Food and Drug Administration (FDA) showed an inverse association between mean relative price (mean generic drug price divided by mean brand-name drug price) and number of FDA-approved manufacturers among single-ingredient generic drug products.7
Although the association between drug price and market competition for oral tetracyclines has been explored, this association has not been well defined for topical dermatologic generic products.8 One study of drug prices among topical dermatologic generic products showed a low median number of manufacturers among drugs sustaining the greatest price increases, but that study did not examine the association between changes in drug price and variations in manufacturing.9 In the present study, we use a nationally representative drug pricing database to characterize the association between changes in drug price and the number of distinct FDA-approved manufacturers for the most commonly prescribed topical dermatologic generic products.
We used the National Average Drug Acquisition Cost (NADAC) database to identify the price per unit for outpatient drugs included in our study.10 Within the NADAC database, each drug formulation (eg, clobetasol ointment vs clobetasol cream) is characterized independently. The NADAC database is the pricing benchmark used by the Centers for Medicare and Medicaid Services. This database provides acquisition costs for outpatient medications supplied by retail pharmacies without accounting for rebates. The present study was deemed exempt from obtaining institutional review board approval by the Partners Healthcare Institutional Review Board, Boston, Massachusetts, as all data was publicly available and deidentified.
Using the Medicare Provider Utilization and Payment Data: Part D Prescriber Public Use File (PUF) for 2015, we compiled a list of drugs with more than 10 annual claims that had been prescribed by dermatologists for Medicare beneficiaries.11 Part D Prescriber PUFs are available for 2013 to 2015 and report information on prescribing physician (eg, National Provider Identifier, name, and specialty), drug name, drug use (eg, claim count and beneficiary count), and total drug costs. To protect the privacy of Medicare beneficiaries, drug encounters associated with 10 or fewer claims are not reported in Part D Prescriber PUFs.
We determined cumulative annual claims counts for the drugs most commonly prescribed by dermatologists. Nontopical medications, drugs with fewer than 400 annual cumulative claims, drugs without a primary dermatologic indication, and those without generic formulations were excluded from analysis. Drugs with fewer than 400 claims were excluded because less than 5% had a primary dermatology indication. We grouped the remaining topical dermatologic drugs into 6 categories: topical steroids, acne and rosacea medications, antifungal medications, nonacne topical antibiotics, antineoplastics, and vitamin D derivatives (eTable 1 in the Supplement).
For each drug, we extracted the price per unit of all cream, ointment, lotion, solution, foam, gel, and shampoo formulations from the publicly available NADAC database.10 We collected annual drug prices from 2013 to 2016 (inflation-adjusted to 2016), using the latest available pricing date within each year.12 We excluded formulations missing NADAC information from 2013 to 2016. We then identified the number of FDA-approved manufacturers for each formulation from 2013 to 2016 as listed in the FDA Orange Book database, 34th (2013) to 37th (2016) editions.13
We analyzed the data descriptively using counts, percentages, medians, means, and ranges. We calculated the Spearman rank correlation coefficient for the change in drug price and the number of manufacturers from 2013 to 2016. We also conducted a planned subgroup analysis stratifying the price-manufacturer data by the number of manufacturers at baseline in 2013.
We identified 597 dermatologist-prescribed drugs with more than 10 claims within the Part D Prescriber PUF (2015). Of these, we excluded 384 drugs with fewer than 400 claims, 113 nondermatologic drugs, and 56 drugs that were not administered topically, were missing NADAC data, or lacked a generic formulation (Figure 1).
The remaining 44 unique generic topical dermatologic drugs corresponded to 116 drug formulations in the NADAC database (eTable 1 in the Supplement) and comprised 70.5% of the total Medicare Part D claims coded by dermatologists in 2015. On the basis of claims data, the most highly used topical dermatologic generic drugs by Medicare beneficiaries were formulations of topical steroids (65 [56.0%]), acne and rosacea medications (20 [17.2%]), and antifungal medications (19 [16.4%]) (Table 1).
On the basis of medians, formulations in the top quartile by percentage change in price increased 257.8% in price, while those in the bottom quartile decreased by 28.5%. Formulations in the top quartile by percentage change in price had 2.0 fewer distinct FDA-approved manufacturers than those in the bottom quartile.
The degree of market competition as reflected by the number of distinct FDA-approved manufacturers was inversely associated with percentage change in drug price. Among the pool of 116 formulations, those with 1 to 2 manufacturers from 2013 to 2016 sustained a median percentage increase in price of 12.7%, whereas those with more than 6 manufacturers had a median percentage decrease in price of 20.5%. Overall, formulations with 1 to 2 manufacturers had a 20.6%, 19.5%, and 33.2% greater median percentage increase in drug price than those with 3 to 4 manufacturers, 5 to 6 manufacturers, and greater than 6 manufacturers, respectively (Table 2).
A similar trend was seen among topical steroids in our planned subgroup analysis. Among the 65 generic topical steroids, formulations with 1 to 2 manufacturers had a 67.8%, 65.3%, and 62.2% higher median percentage increase in drug price than those with 3 to 4 manufacturers, 5 to 6 manufacturers, and more than 6 manufacturers, respectively (Table 2).
We also performed a sensitivity analysis that included 69 formulations that had the same number of manufacturers in 2013 and 2016 to assess price changes when the number of manufacturers remained constant during the analyzed period. Formulations with 1 to 2 manufacturers in the market had a 25.2% higher median percentage increase in drug price than formulations with 3 to 4 manufacturers in the market; a 35.5% higher increase than formulations with 5 to 6 manufacturers; and a 32.1% higher increase than formulations with more than 6 manufacturers.
Among the pool of 116 formulations, percentage change in drug price was negatively associated with the median number of manufacturers from 2013 to 2016 (Figure 2). The Spearman correlation coefficient was −0.26 (P = .005), suggesting that an increase in the number of manufacturers was correlated with a decrease in drug prices among topical dermatologic generic products.
This association was also seen when examining the percentage change in drug price and the change in number of manufacturers, stratified by the number of baseline manufacturers in 2013 (Figure 3). Among formulations with a 2013 baseline of 1 to 2 manufacturers (n = 23) and of 3 to 4 manufacturers (n = 61), there was a negative association between the percentage change in drug price and change in number of manufacturers. This association was not observed among formulations with a 2013 baseline of 5 to 6 manufacturers (n = 24) or of more than 6 manufacturers (n = 8).
Generic topical dermatologic drugs had a median percentage price decrease of 5.3% but a mean percentage price increase of 85.1% from 2013 to 2016. This pattern of discordance between median and mean price changes was similarly reflected among topical steroids, acne and rosacea medications, and antifungal medications, which sustained median percentage price changes of −3.9%, 12.0%, and −11.6%, but mean percentage price changes of 78.9%, 105.4%, and 103.1%, respectively (eTable 2 in the Supplement).
Twenty-eight formulations of topical dermatologic generic medications (24.1%) increased in price by more than 100%, and 9 of these formulations (7.8%) increased in price by more than 500%. Of the 9 topical formulations in our study with price escalations higher than 500% from 2013 to 2016, 5 (55.6%) were formulations of clobetasol. In addition, econazole nitrate cream, 1%, clobetasol ointment, 0.05%, and hydrocortisone solution, 0.1%, each had price increases higher than 900% during this period.
In the present study, we identified an inverse association between the number of FDA-approved manufacturers and percentage changes in drug prices among generic topical dermatologic drugs. Although these findings are informed by topical medication use patterns among Medicare beneficiaries, NADAC is a nationally representative prescription drug pricing index that reflects trends broadly across the United States.
The contribution of limited manufacturing to drug price is most apparent among formulations of topical dermatologic generic medications with 2 or fewer manufacturers, which showed the greatest median increase in drug price (12.7% among formulations with 1 to 2 manufacturers). This increase was attenuated with increasing number of manufacturers, and formulations with more than 6 FDA-approved manufacturers were most resilient to price change (−20.5%).
Our findings suggest that the association of the number of manufacturers of dermatologic agents with drug price is consistent with previously reported FDA data, which has shown that the entry of a second generic drug manufacturer reduces the drug price by approximately one-half, with subsequent decreases resulting from the third (44%), fourth (39%), fifth (33%), and sixth (26%) generic drug competitor. For drugs in populated markets (>6 manufacturers), the mean generic drug price is reduced to less than 20% of the brand-name drug price.7,14,15 Still, the greatest benefit in price reduction exists in settings of extreme market constriction (≤4 manufacturers), a finding which was replicated in this study.
Although market competition may predispose to price increases among topical dermatologic generic drugs, this factor alone may not be sufficient. This is evident from select drugs that did not have a decrease in price despite having an increased number of manufacturers, or vice versa. Although the reasons behind these exceptions are not fully elucidated, one explanation may be that drug prices do not change immediately after a shift in market concentration.14 In addition, given recent reports of collusive practices among oral and topical generic drug manufacturers, it is important that authorities and lawmakers remain vigilant to prevent anticompetitive activities (eg, price fixing) among drug manufacturers.16-19
Given the association between drug price and market competition, policy changes aimed at destabilizing existing drug monopolies and duopolies through increasing marketplace competition may reduce drug costs with time.20 The FDA recently began expediting generic drug applications from manufacturers entering markets with 3 or fewer generic drug competitors, but this step may not be adequate in the short-term. Although increased drug prices by one manufacturer may encourage other competitors to enter the market, this may not occur in smaller markets that manufacturers do not find financially lucrative to enter. In addition, logistical factors, such as the timely acquisition of raw materials, development of manufacturing infrastructure, and establishment of reliable distribution channels, may further preclude new manufacturers from entering a market despite low levels of competition.21
In consideration of these challenges, policymakers should explore temporizing strategies.22 Importation of select, vetted off-patent topical medications from outside the United States may offset price increases among medications with limited market competition until additional manufacturers can be approved. The introduction of nongovernmental organizations focused on drug manufacturing without a price-driven profit incentive may similarly play a valuable role in curtailing costs.
Workarounds such as adjusting pharmacy regulations to allow automatic therapeutic exchange of the cheapest same-class, same-vehicle agent for a given prescription (eg, halobetasol cream for clobetasol cream) may enable patients to receive cheaper, effective medication without treatment delays imposed by prior authorization requests for high-cost topical medications. This process would overcome issues of physician inertia in prescribing practices and eliminate a need for physicians to spend their time monitoring drug costs. Ultimately, patients would quickly receive cheaper, effective medication, and reducing prior authorization workload and patient complaints about costs would improve physician wellness. Physicians who want to prescribe specific agents could specify “no substitutions” and receive the exact prescription if desired.
The present study findings must be interpreted in the context of our study design. The NADAC pricing database is based on voluntary national surveys and may not be entirely representative of all retail pharmacies in the United States. Given the reported endpoints from the data sources used in this study, we were unable to provide more precise measures of market concentration. In addition, given that the publicly reported NADAC and FDA data overlap only for years from 2013 to 2016, future studies may benefit from a longer follow-up period, which may provide a more longitudinal and compelling dimension to the association between drug price and market competition. Our selection criteria were based on Medicare prescribing habits and excluded drugs with fewer than 400 cumulative claims to limit our analysis to drugs most commonly prescribed by dermatologists. This approach may exclude commonly used drugs that are not typically prescribed for the Medicare population but may be commonly used among younger patients (eg, acne medications). Although the FDA Orange Book data represent FDA approvals, not all approved manufacturers may be producing a drug, resulting in the potential overestimation of the number of manufacturers. Finally, the association between drug price and market competition should be interpreted in the appropriate context, and it does not provide further information regarding profits for drug manufacturers.
The present study findings showed an inverse association between change in price of topical dermatologic generic drugs and the number of drug manufacturers, supporting findings previously described for nondermatologic generic medications. These findings also support policies aimed at increasing market competition among generic drugs produced by a limited number of manufacturers.
Accepted for Publication: September 2, 2018.
Corresponding Author: Arash Mostaghimi, MD, MPA, MPH, Department of Dermatology, Brigham and Women’s Hospital, 221 Longwood Avenue, Boston, MA 02115 (email@example.com).
Published Online: October 31, 2018. doi:10.1001/jamadermatol.2018.3798
Author Contributions: Mr Li and Dr Mostaghimi had full access to all of the data in the study and take responsibility for the integrity of the data and the accuracy of the data analysis.
Concept and design: Li, Mostaghimi.
Acquisition, analysis, or interpretation of data: All authors.
Drafting of the manuscript: Li.
Critical revision of the manuscript for important intellectual content: All authors.
Statistical analysis: Joyce.
Obtained funding: Li.
Administrative, technical, or material support: Mostaghimi.
Conflict of Interest Disclosures: None reported.
Funding/Support: This project was supported by award TL1TR001062TL1TR001062 from the National Center for Advancing Translational Sciences to Mr Li.
Role of the Funder/Sponsor: The National Center for Advancing Translational Sciences had no role in the design and conduct of the study; collection, management, analysis, and interpretation of the data; preparation, review, or approval of the manuscript; and decision to submit the manuscript for publication.
Disclaimer: Dr Mostaghimi is an associate editor of JAMA Dermatology but was not involved in any of the decisions regarding review of the manuscript or its acceptance.