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US: Drug Prices Up Sharply This Year

by Milt FreudenheimThe New York Times
June 21st, 2006

Prices of the most widely used prescription drugs rose sharply in this year's first quarter, just as the new Medicare drug coverage program was going into effect, according to separate studies issued yesterday by two large consumer advocacy groups.

AARP, which represents older Americans, said prices charged by drug makers for brand-name pharmaceuticals jumped 3.9 percent, four times the general inflation rate during the first three months of this year and the largest quarterly price increase in six years.

Price increases for some of the most popular brand-name drugs were much steeper; the sleeping pill Ambien was up 13.3 percent, and the best-selling cholesterol drug, Lipitor, was up 4.7 to 6.5 percent, depending on dosage.

Over all, AARP said, higher prices mean that the cost of providing brand-name drugs to the typical older American, who takes four prescription medicines daily, rose by nearly $240 on average over the 12-month period that ended on March 31.

"When the manufacturers' wholesale prices increase, it gets passed through the system, regardless of who the final purchaser is," said John Rother, the policy director of AARP. Although the drug industry's main trade association challenged the accuracy of the AARP survey, a separate study, by Families USA, a patient advocacy group, found similar inflation rates among brand-name drug prices. While the higher prices have a general impact on the drug-taking public, consumer advocates said the higher prices have special implications for Medicare, which Congress barred from negotiating prices with drug makers when lawmakers devised the new so-called Part D drug program.

Commercial insurers, which are offering the drug insurance plans under Medicare's auspices, do have negotiating power. And they say that by switching to generic drugs, consumers can avoid most of the price increases.

The surveys measured manufacturers' wholesale prices, which would not necessarily reflect any discounts insurers might be able to negotiate.

But even so, the price increases in the Medicare drug plans since they began were identical in many cases with the jump in wholesale prices, Families USA said.

Some health care economists said the price increases, if they continued, could have a devastating effect on the new Medicare drug program.

"Higher drug prices may lead to higher premiums next year, which may discourage enrollees from joining or staying in the program, and fewer enrollees could drive premiums even higher," said Stephen W. Schondelmeyer, a University of Minnesota economist who specializes in drug industry issues.

Mr. Schondelmeyer said one clear indication of the inflation's impact could be seen among the six million low-income elderly and disabled people who previously received drug coverage through Medicaid but were automatically switched to the Part D program when it began in January.

That shift was a windfall for drug makers, he said. "Medicaid would have paid 25 to 30 percent less under the old system, including rebates from the manufacturers, than the new Medicare Part D program is paying."

Ron Pollock, the executive director of Families USA, offered another way to gauge the federal impact. The federal Department of Veterans Affairs, which is able to negotiate prices with pharmaceutical makers, is paying 46 percent less for the most popular brand-name drugs than the average prices posted by the Medicare plans for the same drugs, Mr. Pollack said.

Peter Ashkenaz, a Medicare spokesman, said enrollees in the Part D program could obtain a broad range of drugs as well as "personalized help in finding less costly drugs." He said many enrollees were in drug plans with "flat co-pays, which protects them from changes in pricing."

The first quarter of the year is typically the time when drug makers make many of their annual price increases. The industry did not comment on this year's increases, other than to question the accuracy of the AARP survey.

The drug industry's trade group, the Pharmaceutical Research and Manufacturers Association, said in a statement that the AARP conclusions were "erroneous," because consumer drug prices had increased less than 2 percent since Jan. 1. The group, though, was citing a federal Bureau of Labor Statistics report that combines prices for brand-name and lower-priced generic drugs, as well as various "medical supplies."

Paul Fitzhenry, a spokesman for Pfizer, which makes Lipitor, pointed the finger at health insurers, which he said were increasing their drug payment charges to members faster than drug makers were raising their prices.

"There has been a huge disconnect between changes to our prices and increases to consumers' out-of-pocket costs for medicines," he said. "Between 2001 and 2005, our compound annual average net price increase was 3.3 percent per year. During that same time, the average co-payment charged by insurers for brand-name pharmaceuticals has increased at an annual rate of 11.1 to 15.5 percent," he said, citing a Kaiser Family Foundation 2005 survey.

Mohit Ghose, a spokesman for the American Association of Health Plans, a insurance trade group, said the insurers were actually reducing drug spending increases by promoting lower-cost generics instead of brand-name drugs.

Mark Green, a spokesman for Sanofi-Aventis, which makes Ambien, said the drug was "priced more competitively than some other products in the sleep category." He added, "We make every effort to price our prices competitively, relative to the value they provide to patients."





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