The politically powerful pharmaceutical industry continues to take advantage of American consumers and especially the elderly. Drug makers increased their prices last year by an average of 7.4% for those brand-name medicines most commonly prescribed to the elderly, according to the AARP. The increase was almost three times overall inflation, continuing a long-standing trend. The AARP, a strong advocacy group for the elderly, has tracked drug prices going back to 2002. Specifically, they looked at the prices charged by manufacturers to wholesalers. The price increases have been greater since the Medicare drug benefit kicked in on January 1, 2006, which is certainly no surprise.

In the four years before the drug benefit’s startup, tracking reveals that wholesale prices rose between 5.3% and 6.6% annually. According to AARP officials, the outcry over the price of drugs was quite strong when Congress approved legislation establishing the drug benefit. Since the drug benefit began, however, that outcry has diminished somewhat. That’s because the federal government is picking up much of the tab for beneficiaries’ medicine. John Rother, AARP’s policy director, observed:

Unfortunately, many manufactures have taken the absence of an outcry as a green light to go ahead and raise prices even more.

All but four of the 220 brand-name prescriptions in the study had price increases during 2007 and nearly all exceeded the rate of general inflation. Among the top 25 drug products, the sleep aid Ambien, manufactured by Sanofi-Aventis, had the largest price increase, at 27.7%. As we have learned in drug industry litigation, the manufacturer’s wholesale price is the most substantial component of a prescription drug’s retail price. However, insurance companies, such as those that cover Medicare beneficiaries, typically negotiate confidential rebates from the manufacturer. Plans could potentially negate a higher wholesale price by negotiating a steeper discount or by lowering their reimbursement rates to pharmacies. As a practical matter, the latter is unlikely to happen. Still, a change in the wholesale price generally results in a similar percentage change in the price of most prescriptions, according to the AARP. The trade group representing drug makers, the Pharmaceutical Research and Manufacturers of America, is one of the most powerful lobby groups around. In the past, the trade organization has protested comparing the rise in drug prices to general inflation, saying that a comparison to medical inflation is more appropriate. I disagree with that and so does the AARP. Big Pharma has pretty much had its way in Congress over the past seven years, to the detriment of consumers and taxpayers. Their power and influence should be considerably less once George Bush leaves office.

While the AARP’s report focused on higher prices for brand names, federal health officials note that more people are taking generic medicines. They say that trend has accelerated as a result of the Medicare drug benefit. However, the drug companies use tools, such as lower co-payments for generics, to steer consumers to lower-priced medicines. Government economists say that at present about two-thirds of all prescriptions are now generics. In discussing the overall picture, the AARP’s Mr. Rother says:

That’s been the good-news story. The plans have done what we hoped they would do, which is shift people to lower-cost generic drugs. However, savings from people shifting to generics are being offset by these higher prices for brand names.

Hopefully, after this fall’s elections, the American people will get some needed relief in the form of cheaper drug prices. We can’t afford to continue the practice of letting BIG PHARMA call the shots for both the president and the Congress. Americans have been subsidizing drug prices for the rest of the world by paying grossly inflated prices and that must end!

Source: Associated Press & AARP

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