March 28, 2011—Four new studies—by an investment bank, a research firm, a health insurer and a congressional agency—conclude that brand-name drug prices have been outpacing inflation by a wide margin while generic drugs prices have been either falling or holding steady.
U.S. House Democrats who commissioned one of the reports say the findings warrant a congressional investigation. Manufacturers say in response that most prescriptions today are filled with inexpensive generics that wouldn’t have existed if it hadn’t been for their significant past investments. With many of their current best-selling drugs losing their patent protection, the companies say they need strong revenues now to sustain R&D in the future.
Hospitals, health centers and other providers in the 340B drug discount program enjoy a degree of protection against big price hikes. They are entitled to increased discounts from manufacturers on covered outpatient drugs if the products’ ceiling prices rise faster than the cost of living. The same inflation cap also keeps costs down for the Medicaid drug rebate program.
“This is the reason why the [inflation] adjustment is so important in the 340B pricing formula,” said William von Oehsen, president and general counsel of Safety Net Hospitals for Pharmaceutical Access, which represents approximately 700 hospitals in the drug discount program. “Any efforts to dilute that protection would be problematic.”
Biggest Hikes in a Decade
According to one of the new pricing studies, by the bank Barclays Capital, price inflation for branded drugs last year “was the highest we have seen over the past 10 years.”
The investment bank, which looked at list prices for the 130 top-selling branded drugs, found that prices increased 6.9 percent on average in 2010. The inflation rate for all medical care in 2010 was 3.4 percent, according to the U.S. Bureau of Labor Statistics. The broader inflation rate in urban areas, or CPI-U, was only 1.6 percent last year. CPI-U is the rate federal regulators use to calculate the inflation penalty for 340B discounts and Medicaid rebates.
Prices for branded drugs appear to be rising at an even faster rate this year. During the first two months of 2011, Barclays said, prices rose 8.6 percent on average. Price increases this February included 11.9 percent for the third-top-selling drug Plavix and 9.9 percent for seventh-ranking Singulair.
The data collection and analysis firm Thomson Reuters MarketScan examined the average cost of daily doses of the nation’s 15 best-selling brand-name drugs as shown in claims data. Based on that measurement, it said, costs rose at much higher rates in 2010 than they did in each of the previous five years. The Reuters news service, a division of Thomson Reuters, reported the proprietary study’s results.
According to MarketScan, the cost of Seroquel jumped 16.5 percent last year. It said that Lipitor, Crestor, Plavix and Singulair all had cost increases last year in the double digits.
New York State Study
A third study of drug pricing trends in upstate New York found that the average wholesale price (AWP) of a 30-day supply of commonly used brand-name pharmaceuticals rose 93 percent between 2004 and 2010.
According to Excellus BlueCross BlueShield, which conducted the research, the average cost of generics rose just 3.4 percent over the six-year period.
From 2005 to 2010, the insurer said, a 30-day supply of the commonly used brand-name drugs Actos, Advair, Lipitor and Singulair each recorded more than a 30 percent five-year increase in AWP. Nexium’s AWP rose 27.5 percent during the same period.
During roughly the same time, “specialty drugs”—defined as relatively expensive, self-administered medicines for conditions such as multiple sclerosis, hepatitis and cancer—grew both in number and cost, the study noted.
“Added together, the drugs taken to treat multiple sclerosis cost upstate New Yorkers $258 million in 2010,” according to the report. “The average wholesale price for one patient to have a year’s worth of Avonex is $40,650 (an increase of 79 percent from 2006); 52 weeks of Copaxone costs $47,200 (up 112 percent from 2006).”
GAO Study
The fourth study, by the Government Accountability Office (GAO), was requested by House Democrats. It looked at usual and customary drug prices from the first quarter of 2006 through the first quarter of 2010.
Brand-name drug prices, the GAO found, rose 8.3 percent per year on average during the study period while generic drug prices fell an average of 2.6 percent per year. But when the GAO looked at brand-name and generic drugs combined and adjusted for the shift away from the former and toward the latter, prices increased on average by only 2.6 percent per year.
Investigation Sought
The Democrats who commissioned the report called on their GOP colleagues to launch an investigation and hold hearings on ways to further reduce federal spending on prescription drugs.
“These soaring price increases seem to defy explanation,” said Rep. Henry A. Waxman of California, the top-ranking Democrat on the House Energy and Commerce Committee. “Congress needs to investigate and stop drug companies from overcharging seniors.”
“Drug prices have been rising well ahead of inflation,” said Rep. Pete Stark of California, the senior Democrat on the House Ways and Means Subcommittee on Health.”This report reminds us that this is an area where we should be looking for savings for taxpayers and beneficiaries.”
In a statement issued in response to the GAO report, Pharmaceutical Research and Manufacturers of America (PhRMA) said focusing on the price of brand-name medicines alone “is a flawed approach that produces highly distorted results.”
“Nearly 80 percent of all prescriptions are filled with generic drugs,” it said. “Reports that ignore this fact exaggerate drug price trends and miss the point that it is the innovators investments that lead to pioneering advances that improve patient care—and over time it is the innovators investments in new brand medicines that lead to generic copies that are broadly used by patients at low cost for many years.”