Consumer groups report hike in Medicare Part D drug prices

Washington -- In the first three months of the Medicare drug benefit, the average wholesale price for roughly 200 of the brand-name drugs most often used by older Americans underwent the single biggest jump in the last six years, according to a recent study by AARP.

The average price that drugmakers charged wholesalers for medications increased by 3.9% in the first quarter of the year, four times the rate of general inflation and the largest quarterly increase since AARP began tracking the figures in 2000. For typical people older than 50 taking four medications per day, this means their average annual drug bills increased roughly $240 over the 12 months leading up to the end of March, compared with an increase of roughly $190 during the previous year.

In a separate study, the consumer group Families USA found that Medicare drug plans are responding to the wholesale price increases by boosting what they charge for brand-name medications. For the top 20 drugs prescribed to seniors, the vast majority of Medicare Part D plans quoted higher prices in mid-April than they did in mid-November 2005, when enrollment for the drug benefit began.

The study showed that for 15 out of the 20 medications, more than 80% of the plans raised prices over that time period, rather than lowering them or keeping them the same. The median percent change was 3.7%.

Both groups said that seniors are being adversely affected because insurers are passing along the price increases to beneficiaries.

"Shortly after the [Medicare drug law] was enacted, AARP challenged drug manufacturers to keep the rate of price increase for drugs widely used by older Americans to the rate of general inflation," the seniors' group said. "While the rate of increase did slow down beginning in mid-2004, the first quarter 2006 results represent a disturbing reversal of that trend."

Families USA Executive Director Ron Pollack said the data in his group's report show that federal officials' assertions about the power of the market to drive prices down are turning out to be wrong. Centers for Medicare & Medicaid Services Administrator Mark McClellan, MD, PhD, Republican lawmakers and other drug benefit supporters have said that private-sector competition would do a much better job keeping costs in check than government intervention.

"At the same time that the Bush administration and congressional leaders are touting the effectiveness of the Medicare drug plans, those plans are quietly raising the prices that they charge," Pollack said. "As a result, seniors will pay more and more -- as will America's taxpayers."

Both groups said that allowing the federal government to negotiate with drug companies over the prices they charge, a task that is left to pharmacy benefit managers in the private sector, would help alleviate cost spikes such as the ones seen in recent months. Such direct negotiation, which would require congressional approval, is supported by a range of other groups, including the American Medical Association.

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Drug manufacturers and Medicare drug plans challenged both reports, saying that the conclusions were flawed and misleading.

Ken Johnson, senior vice president for the Pharmaceutical Research and Manufacturers of America, said that more reliable official government data show recent drug prices tracking the rate of increase in the costs of medical products. Between January and May of this year, that medical inflation figure was determined to be 1.6% by the U.S. Bureau of Labor Statistics.

The AARP study in particular doesn't take into account the deep discounts and rebates passed along the line from drug firms to wholesalers and eventually on to drug plans and beneficiaries, Johnson said. Just because drug prices are listed at a certain level doesn't mean that seniors are being asked to use their own dollars and drug coverage benefits to foot the entire bill.

"Experts consistently tell us that AARP's numbers simply do not reflect the true amounts paid by real seniors for their medicines," he said. "Unfortunately, AARP seems more interested in generating headlines than in helping America's seniors."

In many cases, Medicare Part D plans are offering lower-than-expected premiums and fixed co-payments to seniors and disabled people, meaning that these patients can receive needed drugs while spending very little of their own money, said Mohit Ghose, a spokesman for America's Health Insurance Plans. Neither the AARP nor the Families USA studies take into account such coverage details.

"The reality of the situation across the country is that seniors are saving significant amounts of money versus what they would be paying out of pocket," he said. "Competition is working."

Both the drug companies and the pharmaceutical benefit managers said that direct government negotiation of drug rates would amount to price controls that would limit drug choices and decrease access to needed therapies. Physicians and their patients would have to deal with more restrictive medication formularies than they do now if lawmakers were to change the statute, the groups said.