Healthy Skepticism Library item: 44

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Publication type: news

Tesoriero H
Torrid Drug-Price Increases Pause AARP Reports 0.5% Rise On Average in 3rd Quarter; Steeper Gains May Loom
The Wall Street Journal 2003 Dec 6

Full text:

Drug-price increases were unusually light in the third quarter, but they appear to be heating up again.

According to a study released today from AARP, the influential senior citizens’ lobby, drug prices in the third quarter rose a minuscule 0.5% on average.

In comparison, they rose 3.5% in the first quarter of 2004, and 1.8% in the third quarter of 2003.

Despite the slowdown in the third quarter, drug prices for the 12 months ended in September as a whole rose 7.4% on average, AARP said, or more than three times the 2.3% rate of general inflation in that period.

“Price increases hurt more than just AARP members,” John Rother, AARP director of policy and strategy, said in an interview. “They break state Medicaid budgets and strain employers and health insurers.”

The study results were released in conjunction with the announcement today of a new drug-price watchdog program in New York state, a joint effort between AARP and the office of New York Attorney General Eliot Spitzer. The program, already under way on a small scale, will enlist AARP members to report drug prices from their local retail outlets.

The AARP study didn’t examine the reason for the price trends, but noted that the Medicare drug-discount cards came out in June. Some analysts also believe that aggressive drug-price increases before the election could have made drug companies political targets. Given the election, “to keep a low profile by not going on with standard price increases was probably a good strategy,” said Bill Little, president of Delta Marketing Dynamics, a health-care marketing-research company in East Syracuse, N.Y.

A spokesman for Pharmaceutical Research and Manufacturers of America, the drug-industry trade association, said, “Under the federal antitrust laws, they have to set their own prices,” adding that federal law restricts trade associations from participating in pricing.

Drug makers now seem to be stepping up the pace of price increases. In November, nine of the top 50 branded drugs increased in price, up from three in November 2003, according to Delta Marketing Dynamics. Price increases ranged from 1.6% to 6.9%.

AstraZeneca PLC said it raised prices last month on its primary-care drugs from 1.6% to 6%. “We take price increases in line with the rest of the industry,” a spokeswoman said.

GlaxoSmithKline PLC also raised drug prices last month. “Long before the election, we recognized the public concern with access to affordable meds,” a spokeswoman said. “We took action to create the orange card [a prescription savings card], which has been around for a couple of years.”

Drug makers have plenty of incentive to raise prices in advance of the 2006 Medicare drug benefit, when greater pricing pressures are expected. AARP’s Mr. Rother said that while many factors drive drug-pricing decisions, “the desire to get the price baseline higher prior to the start of a Medicare drug benefit seems to be one of those factors.”

Analysts project that drug-price increases will continue to outpace inflation. “These guys need price [increases],” said Richard Evans of Sanford C. Bernstein & Co. “Pfizer, Merck and Johnson & Johnson are all kind of desperate. They need price in order to keep revenues within expected ranges.”

Pfizer Inc., Wyeth and Eli Lilly & Co. said they didn’t raise prices in November and can’t comment on future pricing plans. “Eli Lilly & Co.‘s pricing decisions are not politically driven, but value-driven,” a spokesman said.