Drug Price Increase
When a manufacturer raises the list price (WAC) of an existing drug — a common practice that has driven much of the growth in U.S. drug spending.
How It Works
Unlike most consumer products, drug prices in the U.S. frequently increase year over year, often well above inflation. Many brand-name drugs see annual WAC increases of 5-10%. The Inflation Reduction Act of 2022 introduced a penalty: Medicare Part D drugs that raise prices faster than inflation must pay rebates back to Medicare. This "inflation rebate" provision has already slowed price increases for many drugs. However, manufacturers can still set launch prices at any level, and drugs outside Medicare Part D are not subject to these rebates.
Related Terms
- Wholesale Acquisition Cost (WAC) — The manufacturer's list price for a drug sold to wholesalers — often called the "sticker price" before any rebates or discounts.
- Inflation Reduction Act (IRA) — A 2022 federal law that, for the first time, allows Medicare to negotiate prices directly with drug manufacturers for select high-cost medications.
- Rebate — A discount paid by a drug manufacturer to an insurer or PBM after a sale, reducing the effective price below the list price.
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About This Definition
This definition is part of the DrugPrice Drug Pricing Glossary — 34 terms explaining how prescription drug pricing works in the United States. All definitions are written in plain language for patients, caregivers, journalists, and healthcare professionals.