he latest effort to chronicle the cost of prescription drugs found that retail prices for more than 600 of the most widely used medicines rose an average of 9.4 percent in 2013. This was also substantially higher than the average annual increase registered over the previous seven years and exceeded inflation during that time, according to AARP, which released the report today.
The advocacy group found that the average annual cost among the 622 medicines examined was $11,000. More specifically, the cost was $2,960 for brand-name drugs, $283 for generics and $53,384 for specialty medicines, which are typically injected or infused. In percentage terms, brand-name drug prices rose, on average 12.9 percent, while specialty medicines increased an average of 10.6 percent.
“If these trends continue, more and more Americans will simply be unable to afford the medications that they need to get and stay healthy,” said Debra Williams, AARP chief public policy officer, in a statement. “As drug prices continue to escalate, so do our monthly premiums and our out-of-pocket costs at the pharmacy counter.”
The report — which reviewed prices for 227 brand name, 115 specialty, and 280 generic drugs in 2013 — comes amid an escalating debate over the cost of medicines. The issue has become so charged that drug prices have become a regular topic in the presidential campaign, especially after a few companies last year bought older drugs and then jacked up prices by huge amounts.
The trend was typified by Valeant Pharmaceuticals, which bought the rights to a pair of heart medicines early last year, and, on the same day, increased the list prices by 525 percent and 212 percent, respectively. And last fall, Turing Pharmaceuticals, which was run by Martin Shkreli at the time, acquired a life-saving drug often used by HIV patients and raised the price from $13.50 to $750 a tablet, or 5,000 percent.
The response has been intense, especially after Shkreli caused a firestorm by using social media to mock his critics. Congress began hearings into industry pricing trends. One congressional lawmaker introduced a bill to place a three-year moratorium on advertising medicines, since many ads feature newer and more expensive treatments.
Lawmakers in several states, meanwhile, introduced bills to force drug makers to reveal their costs, since the pharmaceutical industry maintains the cost of developing medicines is so high — about $2.6 billion, including failures — in order to justify prices. President Obama and New York Governor Andrew Cuomo included the same demand in their latest budgets.
The reactions underscore the conclusions that AARP touted in its report, which is that the gap between the price increases for prescription medicines considerably outpaced the general inflation rate each year since 2006.
We asked the Pharmaceutical Research and Manufacturers of America, industry trade group for brand-name drug makers, and the Generic Pharmaceutical Association, for comment and will update you accordingly.
[UPDATE: A PhRMA spokeswoman called the analysis “misleading,” because it understates the pricing changes that follow the availability of lower-cost generics. She noted that the IMS Institute recently found that while invoice brand drug prices increased 13.5 percent in 2014, prices increased by 5.5 percent after accounting for discounts, rebates, coupons and other concessions to payers.
[Spending on all prescription medicines, including specialty medicines, she added, has been a consistent share of overall care spending, and is projected to grow in line with overall health care costs through the next decade. “This is possible due to a competitive marketplace for medicines where large, powerful purchasers negotiate aggressively and generic utilization rates are nearly 90 percent,” she said.
Meanwhile, a spokesman for the generic industry wrote us that the AARP reports “shows that retail prices of prescription drugs increased each year analyzed, correctly identifying brand and specialty drugs as the key drivers of growing drug costs, while noting that generic drug costs continue to decline.”]
Two industry analysts, meanwhile, suggested that AARP may be overstating the case.
For instance, the analysis included mark-ups taken by pharmacies, and pharmacy dispensing margins have been accelerating for more than a dozen years, according to Richard Evans, a healthcare analyst at Sector & Sovereign Research. In this way, the analysis captures increased costs that are separate from price increases taken by drug makers.
He also noted that manufacturer rebates were not captured, and so the “net prices” reflecting these givebacks are “a far more accurate reflection of the true cost” to employers and government agencies. And he pointed out that since average rebates are rising rapidly, net prices are growing much more slowly than manufacturer list prices.
Another analyst, Adam Fein of Pembroke Consulting, added that the report acknowledged that any effects of major generic drug launches after 2011 were not included. Therefore, some of the most significant generic launches are excluded from the analysis, he said. As an example, he pointed to generic versions of the Lipitor cholesterol pill, which became available in 2012.
Fein also maintained that comparing drug prices to the inflation rate between 2006 and 2013 was “a false comparison,” because housing and transportation, including fuel, are large components of the Consumer Price Index, which fell considerably during those years, thanks to the recession.
“Almost half of the CPI components declined sharply (and have remained low) for reasons that had nothing to do with the health care industry,” he said. “They only compare drug list prices to the CPI to make a political point, not to provide a fact-based economic argument.”