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Brand-Name Drug Prices Keep Rising

AARP Study Shows Price Hike Exceeds Inflation Rate
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WebMD Health News
Reviewed by Louise Chang, MD

April 10, 2006 -- Prices for popular brand-name drugs rose 6% in 2005 -- slower than the year before but still outpacing inflation -- concludes a report released by AARP Monday.

The group's study tracks average wholesale prices for 193 popular drugs each quarter and found that prices rose last year at their slowest rate since 2001. Still, typical seniors who take four prescription drugs saw their medication costs go up about $190 last year, it states.

At the same time, prices for generic drugs fell slightly in 2005, dropping about 1% from the year before, the report states. Analysts attributed the fall to a greater number of lower-cost generics on the market and to more competition between companies that make generic drugs.

The 6% hike in brand prices was slower than a 7% rise the year before. But it still grew faster than the overall 3.4% inflation rate, making prescriptions more expensive in real terms in 2005 than in 2004.

The Role of Medicare

The study did not capture potential price effects brought by Medicare's new Part D prescription drug benefit, which went into effect on Jan. 1, 2006. Nearly 28 million beneficiaries now have Medicare benefits, though only about 7 million who did not have coverage before have voluntarily signed up for the plan, according to federal figures.

Most Part D plans try to steer seniors toward lower-cost generics, with financial incentives and formulary restrictions pushing beneficiaries to switch from brand-name drugs. A federal program ordering private Part D plans to pay for brand-name drugs during a transition period ended April 1.

John Rother, AARP's lead lobbyist, says while price hikes slowed in 2005, they've gone up nearly 40% since 2000. Over that time, average seniors who take four brand-name drugs for chronic conditions have seen their costs rise nearly $1,200, according to the analysis conducted by AARP and the PRIME Institute at the University of Minnesota.

"The cumulative price increase over six years is real money," Rother tells WebMD.

Price Negotiations

AARP is pushing for Congress to pass a law giving Medicare the authority to negotiate prices directly with drug companies on behalf of beneficiaries. The law that created Part D now prohibits such bargaining and leaves it up to individual private insurance companies.

"We're trying to increase some pressure on the industry to be more reasonable in their behavior," Rother says.

A statement released by the Pharmaceutical Research and Manufacturers of America (PhRMA), the brand-name drug industry's main lobbying group, accused AARP's study of using "fuzzy math."

Retail drug prices rose last year at about the same rate as prices for other medical products and services, it stated.

"Unfortunately, AARP seems more interested in making headlines than in helping seniors," PhRMA spokesman Ken Johnson said.

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