Brand Name Drug Prices Rise Faster Than Medical Inflation

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By Daniel S. Levine

“These soaring price increases seem to defy explanation.”

The General Accounting Office is providing new ammunition to lawmakers critical of rising drug prices with a new report that finds brand name prescription drug prices grew at an annual rate of 8.3 percent from 2006 through the first quarter of 2010, a faster pace than the 3.8 percent annual rise in overall medical costs.

The report, prepared at the request of a group of Democratic Congressional representatives, also found that the price of generic drugs during that same period fell at an average annual rate of 2.6 percent. Overall, a basket of commonly used brand name and generic drugs rose 6.6 percent annually during the same period.

The findings (pdf) are already being used by lawmakers looking to rein in drug prices to turn up the heat on the industry. Democratic lawmaker Henry Waxman, ranking member of the House Energy and Commerce Committee and one of the members who requested the GAO report, used the release of the report as an occasion to call for a Congressional investigation. In a letter to the chair of the House Energy and Commerce Committee and the chair of the Subcommittee on Oversight and Investigations, Waxman, along with Colorado Democrat Diana DeGette, called for an investigation into the price increases and for hearings to assess options for reducing drug prices.

“These soaring price increases seem to defy explanation,” says California Democrat Rep. Henry Waxman, ranking member of the House Energy and Commerce Committee. “Congress needs to investigate and stop drug companies from overcharging seniors.”

John Castellani, CEO of the trade group the Pharmaceutical Research and Manufacturers of America, noted that when generic drug prices are taken into account the rise in overall drug prices stood lower than the overall rise in medical inflation. He says “any analysis of prices must take into account the mix of brand and generic medicines that patients actually use.”

“Too often, medicines are viewed as a cost and not as a savings, even though medicines often reduce unnecessary hospitalizations, help avoid costly medical procedures and increase productivity through better prevention and management of chronic diseases, Castellani says. “Importantly, despite their small share of health costs—relative to other health services—medicines are yielding major health advances.”

The report follows last month’s introduction of legislation that would allow consumers to buy prescription drugs from markets outside the United States. The bipartisan group of lawmakers backing the bill said the same drugs can sell for 35 to 55 percent less in Canada and other markets than in the United States. Anyone who thought the industry’s negotiations with the White House over healthcare reform put to bed Big Pharma’s worries over price controls or drug reimportation should think again. Whether or not hearings are held, the pressure on the industry over pricing will likely continue.