Prescription Drug Prices Still Growing Strong

If your pharmacy bill seems to be growing larger faster, that's because it probably is. In the past four years, prescription-drug prices have increased much more quickly than the prices of other medical products and services, the nonpartisan Government Accountability Office said this week.

The GAO study, which Congress requested after the federal government spent $78 billion -- or about 31% of the $250 billion U.S. total -- on prescription drugs in 2009, found that prices for common prescription drugs grew at an average annual rate of 6.6% from 2006 through the first quarter of 2010. That's much higher than the medical consumer price index's 3.8% average annual increase.

And the prescription-drug-price hikes follow years of previous increases. In 2007, another GAO report found that the average price for commonly used brand-name prescription drugs had grown approximately 6% per year from January 2000 through January 2007.

Generic Prices Fall

But not all prescription drugs have been seeing price hikes. In its latest study, the GAO included 55 commonly used brand-name drugs and 45 common generic drugs. On average, the generic drugs' prices actually fell at an average annual rate of 2.6%, while the brand-name drugs' prices grew at an annual rate of 8.3%.

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The growing gap between brand-name- and generic-drug prices means that many patients are switching to the generic versions, once they become available. The higher sales of generic drugs mean that, overall, the prices paid for each set of active ingredients increased only 2.6% per year, on average, not 6.6%.

Which drugs have seen the biggest hikes? Boehringer Ingelheim's enlarged-prostate-condition drug, Flomax, increased the most over the four-year period, adding 17.6% to its price. Sanofi-Aventis's (SNY) insomnia treatment, Ambien, came in second with a 15.2% boost. And Merck's (MRK) allergy pill, Clarinex, rounded out the top three, growing its price by 12.5%.

Is the Affordable Care Act Causing the Hikes?

In its study, the GAO also examined the allegation that drugmakers had jacked up prices ahead of the Patient Protection and Affordable Care Act, which passed in March 2010. The agency found that prices during that discussion -- from the first quarter of 2009 through the first quarter of 2010 -- grew approximately 5.9%, which is lower than the increases seen in either of the previous two years, but higher than the growth in 2006.

The 2010 health-care law doesn't actually include a provision to control general drug prices. Beginning this year, it does give seniors a 50% discount for brand-name drugs when they hit the Medicare "donut hole," which is a huge gap in drug coverage that leaves some seniors on the hook for thousands of dollars in prescription expenses. The gap is expected to close completely by 2020.