Prescription drug prices grow at a much faster pace than costs for other medical supplies and services

March 15, 2011—Further indication of the role of the cost of prescription drugs as a major driver of healthcare costs overall has been provided by a new report from the General Accountability Office (GAO) that cites how prescription drug prices have grown faster than costs for other medical supplies and services over the past four years.

In 2009, the most recent year from which data were available, prescription drug spending totaled about $250 billion, with  31 percent of that total being paid by the federal government.

In its report, the GAO noted that the “usual and customary” (U&C) price index for the top 100 commonly used drugs rose by an annual average of 6.6 percent from 2006 to the first quarter of 2010, compared to a 3.8 percent average annual increase for medical goods and services.

The data was based on 55 brand-name and 45 generic drugs using prescription drug utilization information from the Blue Cross Blue Shield Federal Employee Program (BCBS FEP), a large, nationwide insurance plan that covers nearly 5 million individuals.

The increase in the price index from the first quarter of 2009 through the first quarter of 2010 was 5.9 percent, less than the increase for the previous 2 years, but higher than in 2006. The GAO report found that the U&C price index for the 55 brand-name medications increased at an average annual rate of 8.3 percent during the four-year period. In contrast, however, the U&C price index for the 45 generic drugs decreased at an average annual rate of 2.6 percent.

When shifts in consumer use between brand-name and generic versions of the same drug were included in the analysis using drugs selected by active ingredient, the U&C price index increased about 2.6 percent per year.

The report found that price trends for the 100 drugs measured using prices other than U&C also increased during the four-year period, but at a somewhat slower rate than the 6.6 percent rate for the U&C price index.

Using the non-U&C formula, the price index for average wholesale prices (AWP) increased about 6.0 percent annually, while average manufacturer prices (AMP) increased at an average annual rate of 5.3 percent.

“This report reminds us that this is an area where we should be looking for savings for taxpayers and beneficiaries,” Democratic Rep. Pete Stark, a ranking member of the House Ways and Means Subcommittee on Health, told Reuters.

Some media reports have suggested that prescription drug prices may have increased more during a debate leading up to the passage of the Patient Protection and Affordable Care Act (PPACA) in March 2010 compared to other recent years.