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Drug Prices Rise; Medicare Bill Blamed

July 7, 2004
The Medicare prescription drug bill was supposed to make drugs more affordable for seniors. But a study by AARP suggests it may have done the opposite. AARP found that prices of brand-name prescription drugs used by older Americans shot up in the first three months of 2004, following Congressional enactment of the Medicare bill.

AARP’s Public Policy Institute found that the annual rate of drug price increase rose to 7.2% for the 12 months ending in March 2004. It called the increase "particularly troubling" since the rate of inflation actually declined from 2.3% in 2003 to 2.0%.

"I had hoped that the Medicare prescription drug bill would have encouraged drug companies not to raise prices because it promises them a bigger market for their products," said John Rother, AARP's policy director, at a news conference.

"The drug companies are trying to maximize their revenue and there is no effective pushback from either the private sector or the government," Rother said.

The Bush administration said the average savings on brand-name drugs is 11 to 18 percent for cardholders. Mark McClellan, the administration's Medicare chief, said that people who use the cards are seeing significant savings.

The drug industry challenged any linkage between the increase in prices and the Medicare prescription drug bill.

Government figures show "that the prices of medicines have increased at an equal rate to other health care services since the Medicare bill was signed into law in late 2003," said Richard J. Smith, vice president of policy for the Pharmaceutical Research and Manufacturers of America.

But many seniors were not convinced.

"This is an outrage," said Douglas Holbrook, a retired union official from Fredericksburg, Va., and an AARP board member. "Since at least 2000, drug prices have risen steadily. The first three months of 2004 looks like more of the same."

The report focuses on 197 of the most frequently used brand name drugs by persons 50 and older. For the three-month period ending March 2004, 16 of the top 25 most frequently used drugs experienced price increases while nine drugs among the top 25 did not witness an increase in cost.

Two drug manufacturers, Bristol-Myers Squibb and Pfizer have 12 of the top 25 selling drugs and all 12 of those drugs experienced a price increase. Price increases for Pfizer drugs ranged from a 2.9% increase Lipitor (20mg) to a 6.4% rise in price for Neurontin (300mg).

Bristol-Myers Squibb (BMS) had four drugs in the top 25 most frequently prescribed drugs. Two of BMS’ drugs, Pravachol (20mg and 40mg) and Plavix (75mg,) experienced price increases of 7.0% and 7.9% respectively.

However, some drug manufactures were able to hold the line during the first quarter. For Merck, which had three drugs in the top 25, only Fosamax (70mg) had an increase in price (4.9%), while Vioxx (25mg) and Zocor (20 mg) saw no change in price.

"The rising trend in pricing continues to be of great concern to American consumers given the fact that these prices outpace inflation," the Institute's statement said. "For those on modest and fixed incomes these price increases are particularly troubling."

July 6 2008

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