A long-running debate over prescription drug costs has centered on whether drug manufacturers are better rewarded for truly innovative medicines or so-called “me-too” drugs that may offer only incremental improvements over existing treatments but still command high prices.
New research from the USC Schaeffer Center for Health Policy & Economics published in Health Affairs finds that drug spending has become increasingly focused on highly novel drugs in the last decade. This shift appears to be driven by increased prescribing of more innovative medicines rather than high prices for a small number of drugs.
“Market forces and government policies appear to be evolving in ways that better reward pharmaceutical innovation. As policymakers continue to scrutinize drug spending, our findings suggest this spending is increasingly on treatments more likely to represent true scientific advances,” said lead author Darius Lakdawalla , Schaeffer’s chief scientific officer and USC university professor of pharmaceutical economics and public policy.
How researchers determined drug novelty
USC researchers examined 20 years of data on about 600 newly approved small-molecule drugs, such as prescription pills, while developing a framework to assess their novelty.
Researchers matched records from a public database of drug characteristics—which includes information such as molecular structure, biological targets, and therapeutic class—with FDA files of approved drugs. They then linked data on drug spending from the Medical Expenditure Panel Survey, a nationally representative source of U.S. healthcare use and spending, to a database of drug pricing and rebate information to estimate both gross revenues and net revenues after accounting for manufacturer discounts.
To determine novelty, researchers developed measures to assess how similar a new drug’s molecular structure was to other previously approved drugs in its class, how many drugs shared the same biological target, and the uniqueness of how the drug is delivered and absorbed. Drugs were categorized as low, medium or high novelty for each of the three measures.
Key findings
[See the data: https://www.datawrapper.de/_/hdcKp/?v=4 ]
Policy implications
The increase in drug spending beginning in 2013 has often been attributed to the introduction of a few innovative high-cost therapies, including highly effective hepatitis C treatments. However, while USC researchers found highly novel drugs were major contributors to revenue growth after 2013, they also observed increasing revenue among innovative drugs introduced before 2013.
The shift to greater spending on innovative drugs could be explained by PBMs’ growing use of restrictive formularies around this time, the researchers suggested.
PBMs, which negotiate drug coverage on behalf of health plans, find it easier to exclude drugs with multiple, similarly effective therapeutic alternatives. As a result, more novel treatments may have been more widely covered, which in turn could be incentivizing manufacturers to focus development on meaningful advances.
“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.
About the study
Ian Haworth of the USC Mann School is also an author. Please see the study for author disclosures.
Health Affairs
3-Aug-2026