Prescription Drug Price Increases Outpace Inflation Rate, Two Studies Find
Price increases for brand-name prescription drugs have outpaced the overall rate of inflation in the last several years, "eroding possible savings" under the new Medicare prescription drug discount cards, according to two new studies released Tuesday, the Baltimore Sun reports. In its study, the AARP Public Policy Institute examined manufacturers' prices for 197 drugs commonly prescribed to seniors, finding that medications' average prices rose 27.6% from 2000 through 2003, nearly three times the rate of inflation during the same period (Zaneski, Baltimore Sun, 5/26). The AARP study used changes in the wholesale acquisition cost, which is generally the price listed on the invoices between drug manufacturers and wholesalers. The WAC is typically about 20% to 25% less than the average wholesale price, which is the suggested invoice price from wholesalers to pharmacies or providers (AARP study, 5/25). According to Wall Street Journal, the rate of inflation from 2000 through 2003 was 9.3% (Lueck, Wall Street Journal, 5/26). If passed on to consumers, the increases could translate to an average spending increase of $101 in 2000 and $181 in 2003 for a person taking three medications, according to the report (Lueck, Wall Street Journal, 5/26). Researchers also found that manufacturers' price increases accelerated each year of the study, from 4.1% in 2000 to 6.9% in 2003 (Kemper, Los Angeles Times, 5/26). According to the Wall Street Journal, AARP paired the report with the first issue of a new quarterly "Watchdog Report" that will track drug price increases and highlight individual companies' actions (Lueck, Wall Street Journal, 5/26). CEO Bill Novelli said, "Because of [the study's] findings, we will now issue quarterly reports on the drug pricing to monitor the industry's performance" (Carey, CQ Today, 5/25). A separate study by Families USA examined average wholesale prices for the 30 brand-name drugs most commonly prescribed to seniors, finding that between January 2003 and January 2004, prices increased 6.5%, or 4.3 times the consumer price index for all items besides energy . The study also noted price increases for the five top-selling drugs, including Lipitor with an 8.3% increase, Plavix with a 7.9% increase, Fosamax with a 6.9% increase, Norvasc with a 9.9% increase and Celebrex with an 8.1% increase. Neither study examined prices for generic drugs (Los Angeles Times, 5/26). The AARP study is available online. The Families USA study also is available online. Note: You will need Adobe Acrobat Reader to view the study.
According to AARP and Families USA, the rise in drug prices "undercuts the impact of the new Medicare drug discount card" program, the Washington Post reports (Kaufman/Brubaker, Washington Post, 5/26). The discount card program, created as part of the new Medicare law, is available to Medicare beneficiaries who do not have prescription drug coverage through Medicaid. Beneficiaries have access to a number of discount cards endorsed by Medicare. Card sponsors can charge an annual enrollment fee of as much as $30 and likely will offer savings on at least one medication in each of 209 classes of treatments commonly used by Medicare beneficiaries. Medicare beneficiaries with annual incomes of less than $12,372 for individuals or $16,608 for couples will qualify for a $600 annual subsidy for their prescription drug costs and will not have to pay enrollment fees. Beneficiaries can use the Medicare Web site or call 1-800-MEDICARE to make card-to-card comparisons of prescription drug discounts. According to HHS Secretary Tommy Thompson, the discount cards provide average savings of about 10% to 17% for brand-name medications and 30% to 60% for generic treatments. Enrollment in the program began this month (California Healthline, 5/21).
Ron Pollack, executive director of Families USA, said, "The overwhelming majority of seniors will receive no help this year or next year from skyrocketing drug prices, and their medicines will be much more unaffordable. For those who get discounts, potential savings will be negated by large increases in base prices" (Baltimore Sun, 5/26). He added, "It's the functional equivalent of going to a used car salesman and being told you're getting a great deal because you got a $3,000 discount. Only before you came, he raised the price of the car by $4,000." John Rother, policy director for AARP, said, "The discounts are important and significant. But, mapped against this pattern of price increases, the discounts really just offset the last three years of price increases" (Washington Post, 5/26). Pollack said that if price increases continue unchecked, they could "undermine the Medicare prescription drug benefit that begins in 2006," the AP/Las Vegas Sun reports (Sherman, AP/Las Vegas Sun, 5/25). Rother said, "Only the manufacturers can really explain their behavior. But what seems to be driving (the accelerating price increases) is politics ... their anticipation of a Medicare [prescription drug] benefit" (Los Angeles Times, 5/26). Rother added, "These increases we don't think are justified. It's almost every single drug, every single manufacturer. ... And there doesn't seem to be any economic reason for it" (Barfield Berry, Long Island Newsday, 5/26). David Gross, co-author of the AARP study, said, "The clear picture is that prices have been going up a lot and we don't have any reason to believe these increases are not being passed on to consumers."
According to the Post, "[s]teep price increases appear to be continuing this year," with Merck confirming this week that it raised the price of Fosamax by 4.9% and Vioxx by 4.8% in March. Tony Plohoros, a spokesperson for Merck, said, "Merck seeks to price its medicines competitively and based on the therapeutic value they provide patients" (Washington Post, 5/26). A spokesperson for Eli Lilly said that other health care sectors are much more costly than prescription drugs and that Lilly prices its products "fairly and appropriately for the value they deliver to both patients and payers" (Lueck, Wall Street Journal, 5/26). Jeff Trewhitt, spokesperson for the Pharmaceutical Research and Manufacturers of America, said the studies are flawed because they do not examine prices for generic drugs, which account for 52% of prescription drug sales, and because they compare drug price increases with the overall inflation rate, instead of the inflation rate for all medical services (Los Angeles Times, 5/26). He noted that the average pharmaceutical inflation rate was 4.4% per year, compared with 4.6% per year for medical inflation (Baltimore Sun, 5/26). Trewhitt added, "The data clearly demonstrate that increases in drug prices are in line with medical inflation" (Los Angeles Times, 5/26). He said, "We are not the predominant driver of medical inflation" (Baltimore Sun, 5/26).
According to the Sun, Democrats "used the studies to flog the Bush administration for crafting a Medicare overhaul that they say will do more for the health of pharmaceutical companies' bottom lines than for seniors" (Baltimore Sun, 5/26). Presumptive Democratic presidential nominee Sen. John Kerry (Mass.) said the studies confirm "that the Medicare drug discount card is a fraud and benefits the insurance and drug companies, not the millions of seniors who need relief" (Washington Post, 5/26). Sen. Edward Kennedy (D-Mass.) said the studies show that the drug card program "provides little help in the face of skyrocketing drug prices of crisis proportions" (CQ Today, 5/25). In a statement he said, "Seniors need a real break ... but they won't get one as long as this administration panders to the big drug companies that overcharge for their prescription drugs" (Baltimore Sun, 5/26). The Bush administration "strongly criticized the studies," according to the Times. Speaking at an event Tuesday in Youngstown, Ohio, Bush praised the drug cards, saying they would save most seniors "15(%) to 25% off of brand-name medicines" (Los Angeles Times, 5/26). HHS spokesperson Bill Pierce said, "We've delivered on a promise: It's real discounts, it's real help and it's right now" (Baltimore Sun, 5/26).
Although generic drug prices available through the new Medicare card program are "generally lower than without the card," the "large margins" between the average wholesale prices paid by pharmacies and the retail prices paid by beneficiaries "indicate there's room for even bigger discounts and savings for the elderly," the Wall Street Journal reports. The Wall Street Journal compared prices for fluoxetine, the generic version of Prozac, which costs pharmacies about four cents per capsule or less than $4 for a 90-day supply. According to the Medicare drug comparison Web site, beneficiaries could pay as much as $84.15 for three 30-day generic fluoxetine supplies using Walgreen's discount card at other pharmacies, while filling a similar prescription with Aetna's card would cost $65.25. One Medco Health Solutions card available through its mail-order pharmacy offered a discount of $41.38 for a 90-day supply of fluoxetine. By comparison, Costco.com sells 100 capsules of fluoxetine for $14.94 without a discount card. The Journal reports that with such markups, generics "can generate a huge share of profit for pharmacies." But officials for pharmacies and pharmacy benefit managers say that despite large markups, their companies have small profit margins because they sell many brand-name drugs at cost or less and because of dispensing costs that run about $10 per prescription. Robert Mead, a spokesperson for Caremark, which offers several Medicare discount cards under the name RxSavings, said that examining prices for only a small fraction of drugs and drawing a conclusion about profit margins is "flawed, misdirected and misleading" (Martinez, Wall Street Journal, 5/26).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.