The cost of prescription drugs is set to climb in 2025 and beyond, according to TD Cowen’s 30th Annual Drug Pricing survey.
The investment bank polled 27 health maintenance organizations, pharmacy benefit managers, and hospitals during the fourth quarter of 2024, post-election. This group was responsible for about one-fourth of total U.S. drug spending in 2024 — about $179 billion. The respondents expressed a general consensus that drug prices are likely to continue rising steadily, fueled by a pipeline of high-cost treatments.
In 2024, per-unit costs for branded drugs rose by an average of 7%, up from a 5% increase in 2023, according to the report. Cancer treatments, cell and gene therapies, diabetes and obesity medications, like the incredibly popular Ozempic, and drugs targeting rare diseases were seen by respondents as some of the biggest drivers of spending.
Looking ahead to 2025, Cowen analysts predict that acquisition costs — the actual price paid to a drug maker — for branded drugs will increase by another 7%. Over the following three years, however, price growth is expected to slow, with annual increases averaging around 3%.
These price hikes come despite federal efforts to rein in costs, including the Inflation Reduction Act (IRA). The IRA, which began capping out-of-pocket costs for patients last year, also allows Medicare to negotiate prices on some of the most expensive drugs.
Still, 85% of survey respondents said they expect the legislation to have only a “modest” or “moderate” effect on drug prices over the next three years.
“Responses for next 12 months — when juxtapositioned against those for the next 3 years — could be interpreted as anticipation of a deceleration in drug price increases, and this very well could be what happens,” the analysts wrote about the survey results. “But this has been a feature of this survey’s results for many years and, at least in the past, a substantial deceleration in drug price appreciation has not played out.”
The report comes just a week after a separate analysis found that pharmaceutical companies increased the price of over 250 existing brand drugs.
Nearly all the price increases were under 10%, with the median increase across all the affected medications being 4.5%, matching the median increase last year, Reuters reported, citing data from healthcare research firm 3 Axis Advisors.
Significant price hikes of existing drugs were once much more common in the U.S., but in recent years, pharmaceutical companies have scaled them back following backlash during the mid-2010s.
This shift also coincided with the passing of the IRA, which also required drug manufacturers to pay rebates to the government for price increases that exceeded the inflation rate on medications covered by Medicare. In response, some pharmaceutical companies have adjusted their strategy by introducing new drugs at higher launch prices and embracing treatments for rare diseases, also called orphan diseases. These illnesses typically affect a small population, usually 200,000 or less. Drug companies can leverage a lack of alternative treatments to justify high prices.
Pharmaceutical companies set prices for new drugs in the U.S. 35% higher in 2023 than they did the prior year, according to another analysis by Reuters.
