Drug Prices Outpacing Inflation

Changes in Medicare will do little to shield older Americans from drug prices that are going up much faster than inflation, say two groups pressing for lower drug prices.

AARP and the consumer group Families USA released separate studies Tuesday that show prices for brand-name prescription medicines rose at more than three times the rate of overall inflation last year and that the rate of increase has accelerated in recent years.

They said the widening gap between drug prices and general inflation is diminishing the purchasing power of older Americans who receive increases in Social Security based on the Consumer Price Index. The index is the government's most closely watched inflation measure.

Families USA fought Medicare legislation last year that created a drug discount card that goes into effect next week and prescription drug insurance that starts in 2006. The group argued the bill shortchanged consumers and rewarded insurers and drug makers. The 35 million-member AARP gave the bill its blessing, widely viewed as a key reason it was approved.

Now, both groups assert that the new law lacks provisions to alter the trend of rising pharmaceutical prices. They want drug imports legalized and the government to have the authority to negotiate Medicare prices with drug makers.

"If the price of drugs keeps going up faster than inflation, it will become more and more difficult for consumers, especially older consumers, to be able to afford them," said John Rother, AARP's policy director. AARP also has asked pharmaceutical companies to limit price increases to inflation, but the responses have not been encouraging, AARP spokesman Steve Hahn said.

The average price increase for the top 30 brand-name drugs used by older Americans was 6.5 percent last year, the Families USA report said. AARP's study showed an average 6.9 percent price increase for nearly 200 drugs. Inflation in general was 1.9 percent.

Since 2000, the drug prices have risen 27.6 percent, AARP said. General inflation was 9.3 percent for the same period.

Prices increased between 6.9 percent and 9.9 percent last year for the five leading drugs in terms of sales — cholesterol-reducing Lipitor, the blood thinner Plavix, Fosamax for osteoporosis, the blood pressure drug Norvasc and Celebrex, a pain reliever — the Families USA study said.

The Bureau of Labor Statistics, which compiles the Consumer Price Index, said prescription prices rose by only 2.5 percent last year, but that measure also includes generic drugs. Stephen Schondelmeyer, a University of Minnesota professor of pharmaceutical economics and an author of the AARP report, said the index was changed in the mid-1990s to minimize drug price increases.

The reports issued Tuesday excluded generic drugs, which make up roughly half of all prescriptions written in the United States, but only about 10 percent of the dollar value, said Schondelmeyer.

Both studies examined wholesale prices, reasoning that fluctuations in those were reflected in costs at the retail level.

Jeff Trewhitt, a spokesman for the Pharmaceutical Research and Manufacturers of America, an industry group, said the studies overstated the inflation rate for prescription drugs and did not account for the industry's substantial research and development costs.

Prices of prescription medicines have risen 4.4 percent on average in each of the past three years, slightly slower than medical inflation, Trewhitt said. "That's a more accurate basis for comparison," he said.

Ron Pollack, president of Families USA, said the increases undermine the discounts available through Medicare's new drug cards. "Over time, base prices have increased by a higher percentage than the discounts the administration is claiming," he said.

The Bush administration has said the Medicare drug cards offer savings of 10 percent to 17 percent on brand-name drugs.

Mark McClellan, administrator of the federal Centers for Medicare and Medicaid Services, said the cards and the requirement for drug prices to be posted will help reduce Americans' drug costs.

McClellan urges Medicare beneficiaries to consider using cheaper generics when they fill prescriptions.