Drug Price Increases

Drug pricing, especially for branded, on-patent pharmaceuticals, has been a source of concern for years.  These products in essence have monopoly-like pricing opportunities and the drug companies haven’t been shy about using it.  The American Association for Retired Persons released the latest in its regular series of reports on this pricing.    (AARP Report) The report looks at stated AWP price increases in the twelve months ending at the end of first quarter 2010.  While the industry may say AWP doesn’t reflect the actual price most purchasers pay, trends in AWP pretty closely mirror those actual prices.

Here are the pretty shocking numbers–for brand drugs, a 9.7% increase, 10% if you only look at those still on-patent.  Eighty-eight percent of brand drugs had a price increase in this period and most of the ones that didn’t are off-patent.  The average annual cost to a person taking one brand drug is $2,190.   For specialty drugs the increase was 9.2%, 9.8% for those on patent.  Almost every on-patent specialty drug had a price increase in the period.  The average annual cost of one specialty drug–hold on to your hat–$34,550!  Generics on the other hand, experienced at 9.7% decrease and most did not have a price change.  The average annual cost for a generic drug is $310.  Generics are obviously a godsend to those on fixed or low incomes.

The brand-name drug industry’s pricing is shameful; that’s all there is to it.  The price increases are far above inflation; there are no underlying cost increases that the industry can use to justify this level of price increase.  Some of the increases are driven by wanting to get ahead of Part D implementation and pricing and some by anticipating potential untoward effects of reform.  But basically, it is purely a matter of making as much money as possible without regard to the impact on patients or the overall health system.  It is also not smart from a policy perspective, as the industry is just asking for some stronger regulation of its prices.  This would probably be poorly done and have negative unintended consequences, but it is hard to see the public or policymakers tolerating this behavior indefinitely.