Prescription drug spending in the United States is increasingly flowing toward medicines that represent genuine scientific advances rather than “me-too” products that closely resemble existing treatments, according to new research from the USC Schaeffer Center for Health Policy & Economics. The study, published in Health Affairs, suggests that the growth in pharmaceutical spending over the past decade has been driven largely by greater use of highly novel medicines—not simply by manufacturers charging more for a small group of expensive drugs.
The findings challenge a familiar explanation for rising drug costs: that the pharmaceutical market primarily rewards incremental products with aggressive prices. Instead, the researchers found that drugs with unusual molecular structures, distinctive biological targets, or innovative delivery mechanisms gained a growing share of the market after about 2013. Their revenues increased substantially faster than those of less novel medicines, even after estimated rebates and discounts were taken into account.
“Market forces and government policies appear to be evolving in ways that better reward pharmaceutical innovation,” said Darius Lakdawalla, the study’s lead author, chief scientific officer at the Schaeffer Center and USC university professor of pharmaceutical economics and public policy. “As policymakers continue to scrutinize drug spending, our findings suggest this spending is increasingly on treatments more likely to represent true scientific advances.”
To investigate the trend, the USC team analyzed two decades of data covering approximately 600 newly approved small-molecule drugs, including many prescription pills. The researchers developed a framework that measured novelty from three technical perspectives. First, they examined how chemically similar each new drug was to previously approved medicines in the same therapeutic class. Second, they assessed how many other drugs acted on the same biological target. Third, they evaluated the uniqueness of the drug’s absorption and delivery characteristics, which can affect how a medicine reaches and interacts with the body.
Each medicine was classified as having low, medium or high novelty for each of these dimensions. The researchers then connected those classifications to information from the FDA, public databases describing molecular and therapeutic characteristics, and national spending records. Drug-use and expenditure data came from the Medical Expenditure Panel Survey, a nationally representative source that tracks healthcare utilization in the United States. Pricing and rebate information was used to estimate both gross revenue and net revenue after discounts negotiated with health plans and pharmacy benefit managers, or PBMs.
The analysis revealed a major change in the pharmaceutical market beginning around 2013. During the preceding years, the market for less biochemically novel medicines had been expanding, even as the relative share of those products gradually declined. After 2013, however, medicines with the highest levels of novelty began to pull sharply ahead. Average gross revenue for drugs with highly distinctive therapeutic targets rose from roughly $400 million to $1.6 billion by the end of the decade—a fourfold increase that greatly exceeded revenue growth among less novel drugs in the same category.
That widening gap was not explained solely by list prices. The researchers found that the difference between highly novel and less novel medicines largely remained after accounting for estimated rebates paid to health plans and PBMs. At the same time, prescription volumes for highly innovative drugs surged, while prescriptions for less novel medicines declined. The pattern indicates that increased spending on novel drugs was primarily associated with broader use, rather than simply with manufacturers raising prices on a limited number of products.
The results also complicate the common view that the post-2013 increase in pharmaceutical spending was caused mainly by a few breakthrough therapies, including highly effective hepatitis C treatments. Those medicines were important contributors to the overall increase, but the USC analysis found that innovative drugs launched before 2013 also experienced rising revenues. The shift therefore appears to reflect a broader transformation in prescribing and coverage, rather than a temporary spike caused by a handful of spectacularly expensive new therapies.
The researchers suggest that changes in PBM formularies may have helped produce this transformation. PBMs negotiate prescription coverage for health plans and increasingly use restrictive formularies to manage spending. A medicine that has several similarly effective alternatives can be excluded or placed in a less favorable coverage tier, while a genuinely distinctive treatment may face less direct therapeutic competition. If novel drugs are more likely to receive favorable coverage, patients may use them more often, creating stronger commercial incentives for manufacturers to invest in treatments with new mechanisms or delivery systems.
“ Our research shows that the market rewards different forms of pharmaceutical innovation and highlights how reimbursement and formulary decisions can shape whether novel medicines succeed in the marketplace,” said co-author Boshen Jiao, a Schaeffer scholar and assistant professor at the USC Mann School of Pharmacy and Pharmaceutical Sciences. The authors emphasize that novelty does not automatically guarantee clinical superiority, affordability or value, and their analysis does not establish that formulary changes alone caused the market shift. Still, the findings suggest that the economics of drug development may be moving toward a model in which meaningful scientific differentiation is increasingly rewarded. Ian Haworth of the USC Mann School also contributed to the study.
Subject of Research: Pharmaceutical drug novelty, prescription drug spending and the economic rewards for medical innovation
News Publication Date: 3-Aug-2026
Web References: http://www.healthaffairs.org/doi/10.1377/hlthaff.2026.00054; https://www.datawrapper.de/_/hdcKp/?v=4
References: Health Affairs study by Darius Lakdawalla, Boshen Jiao, Ian Haworth and colleagues
Keywords: prescription drug costs, pharmaceutical innovation, drug novelty, me-too drugs, drug spending, health economics, pharmacy benefit managers, PBMs, drug pricing, formularies, healthcare policy, pharmaceutical industry, medical economics
