Prescription Drug Costs Grow Faster Than General Inflation

Despite the substantial decrease in the cost of generic drugs, this price change has been offset by the substantial drug price growth among brand name and specialty drugs, according to a report by AARP’s Public Policy Institute.

The study used a combined market basket of 622 generic and brand name specialty and traditional prescription drugs. The average annual increase in retail prices was 9.4% and the general inflation rate was 1.5%.

“Increases in the retail price of prescription drugs have a corresponding impact on the cost of drug therapy for the individual and all other payers,” wrote authors Stephen W. Schondelmeyer, PharmD, PhD, of the PRIME Institute at the University of Minnesota, and Leigh Purvis, MPA, of AARP. “The average annual cost of therapy—which includes specialty drugs—was $11,341 a year, coming close to the average Social Security benefit of $15,526 a year.”

AARP reported that between 2006 and 2013, the retail prices for commonly used prescription drugs have increased faster than general inflation. Patients who take prescription medication over a long period of time have an annual cost of over $11,000 per year.

The average annual cost is almost three-quarters of the average social security retirement benefit at $15,526, and nearly half of the median income for Medicare beneficiaries at $23,500. Furthermore, it is more than one-fifth of the median US household income of $52,250.

“Prescription drug price increases also affect employers, private insurers, and taxpayer-funded programs like Medicare and Medicaid,” the authors wrote. “For example, the Medicare Payment Advisory Commission recently attributed the majority of ‘excess’ growth in Medicare Part D spending to growth in the average price of drugs provided to enrollees.”

This average price hike in prescription drugs far exceeds the price increase for other consumer goods and services during the same period of time. These medications are found to be widely popular among the elderly, including Medicare beneficiaries.

These spending increases will eventually have an effect on all Americans too. Individuals who have private health insurance will end up paying higher premiums and cost sharing for their coverage.

Furthermore, higher drug prices could lead to an increase in taxes over time, as well as cuts in public programs in order to cover the increase in government spending. The average annual retail price increase in 2013 for these 622 prescription drugs was more than 6 times greater than the rate of general inflation (9.4% vs. 1.5%).

Meanwhile, brand name and specialty drugs saw significant price increases of 12.9% and 10.6%, respectively, in 2013, while generic drugs dropped 4%. Generic drug prices comprise a small share of the market at 18.3%, according to AARP.

The average annual therapy cost for a brand name drug came in at $2960 in 2013, while the average annual cost for a generic drug was $283 and the average annual cost for a specialty therapy was $53,384.

“The rates of price increase in the brand name and specialty market baskets have, in general, substantially exceeded the rate of general inflation since at least January 2006,” the authors wrote. “In contrast, on average, retail prices for generic drugs have been consistently declining (ie, an average negative change in the retail price) over the same time period. However, it is notable that the rates of price decreases in the generic market basket have slowed considerably since November 2012.”