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Prices Still Increasing for Brand-Name Drugs

Posted on: Wednesday, 5 March 2008, 00:00 CST

The American Association of Retired People (AARP) released a report today that said drug makers increased wholesale prices for the most commonly prescribed brand-name medicines by 7.4 percent last year, about two-and-a-half times the inflation rate. 

The report found that price increases were slightly greater since the government implemented the Medicare prescription drug benefit in January 2006.

The increase continues a long-standing trend going back to 2002, with wholesale prices rising between 5.3 percent and 6.6 percent a year from 2002 to 2006.

AARP officials said the protest over drug prices was quite strong when Congress approved the Medicare drug benefit, but has since diminished as the U.S. federal government now funds most of the cost for prescription drugs.

"Unfortunately, many manufactures have taken the absence of an outcry as a green light to go ahead and raise prices even more," said John Rother, AARP's policy director, according to an Associated Press report.

In 2007, all but four of the 220 brand-name prescriptions in the study had price increases, with nearly all exceeding the general inflation rate. Among the top 25 prescription drug products, the sleep aid Ambien, made by Sanofi-Aventis, had the largest price increase at 27.7 percent.

A very small number of drugs, however, had prices increase either slightly or not at all.   For example, Merck's cholesterol drug Zocor had no price change in 2007, and Bristol-Myers Squibb's blood thinner Plavix had a price increase of only 0.5 percent.

A drug maker’s wholesale price is the most substantial component of a prescription drug's retail price.   However, insurance companies such as those that cover Medicare beneficiaries negotiate confidential rebates from the manufacturers, which are usually passed on to the consumer.  

Some plans could potentially negate a higher wholesale price by negotiating a steeper discount or by lowering their pharmacy reimbursement rates.  But AARP said an increase in the wholesale price generally leads to a similar increase in the price of most prescriptions.

Pharmaceutical Research and Manufacturers of America, the trade group that represents the drug makers, said AARP's numbers don't represent the actual price consumers pay for medicine, nor do the numbers take into account generic drugs.  Both of these would show an overall slowing in the growth of prescription drug prices.

Federal government statistics since 2000 show prescription drug prices have increased slower than overall medical inflation, said Ken Johnson, senior vice president for the trade group, in an Associated Press interview.

Johnson said government figures show prices increased 3.7 percent annually for medicines versus 4.3 percent for overall medical inflation.  But the government's price index for medicines includes a blend of brand-names and generic drugs that represents what "consumers actually buy - rather than the few selectively highlighted by AARP," Johnson explained.

About two-thirds of all prescriptions now are generics, according to government economists.

Although the AARP report focused on higher prices for brand names, federal health authorities say that more people are taking generic medicines, and that the trend has accelerated as a result of the Medicare drug benefit because insurance plans use tools, such as lower co-payments for generics, to steer consumers toward lower-cost medicines.

"That's been the good-news story," Rother said. "The plans have done what we hoped they would do, which is shift people to lower-cost generic drugs," Rother said. "However, savings from people shifting to generics are being offset by these higher prices for brand names."

Prescription medicines account for roughly 10 percent of the total national health care costs.  This percentage has remained fixed despite the 14 million seniors and disabled people gaining prescription drug insurance since the benefit began, Johnson said.

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The AARP’s full report can be viewed at http://assets.aarp.org/rgcenter/health/2008_05_watchdog_q407.pdf  

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