Drug Prices Rise Despite Calls for Cuts
By JONATHAN D. ROCKOFF
[See GAO Report attached: "Prescription Drugs: Trends in Usual and Customary Prices for Commonly Used Drugs"]
Even as government and private health plans push to restrain spending on medicines, the prices of brand name prescriptions are climbing rapidly, reaching the steepest rate of the decade last year.
In 2010, the average price increase was 6.9%, according to investment bank Barclays Capital, which analyzed the list prices of the 130 top-selling drugs by sales. That topped 2008's average increase of 6.8%, the previous high since Barclays began tracking the jumps in 2000.
The increases hit a range of medicines, including insulin given to diabetics and injectables for rheumatoid arthritis. The blood-pressure pill Benicar, made by Daiichi Sankyo Co., had the biggest annual jump, at 29.3%. Other sizeable gainers were leukemia therapy Gleevec from Novartis AG, which rose 20.9%, and Concerta attention-deficit-disorder tablets from Johnson & Johnson, up 19.7%.
Several blockbuster drugs about to face competition from low-priced generics also saw large increases, including Pfizer Inc.'s cholesterol fighter Lipitor, whose price rose 12.4%. Blood thinner Plavix, sold by Bristol-Myers Squibb Co. and Sanofi-Aventis SA, rose 13.2%.
The continuing increases reflect industry push-back against efforts by government and commercial health plans to restrain spending on medicines, coupled with the looming decline in revenue from blockbuster drugs that will soon lose patent protection, according to industry experts.
Health plans usually negotiate rebates—often a percentage off the list price that drug makers pay when a payer covers the cost of a prescription—to lower their costs. Payers are able to negotiate such concessions because they could otherwise refuse to cover a drug, or encourage use of a competitor.
And these rebates have been on the rise. Rebates for private plans averaged 14.3% of a brand-name drug prescription in 2009, up from 8.4% in 2002, according to investment research firm Sector & Sovereign Research.
On Jan. 1, the health overhaul law raised Medicaid's minimum rebate for brand-name drugs to 23.1%, from 15.1%.
Drug firms are also preparing for steep revenue declines as top-selling branded drugs lose patent protection and compete against cheaper generics. According to some estimates, drugs with about $110 billion in sales are expected to go off patent over the next few years.
By hiking prices, drug makers are "looking to maintain and keep their profit up," says Eileen Wood, vice president of pharmacy and health-quality programs at CDPHP, a health plan in New York State. Ms. Wood and other payers say patients and their employers ultimately bear the higher cost.
"The price increases get rolled back into premiums" and also increase out-of-pocket costs like co-pays, said Helen Sherman, chief pharmacy officer at the pharmacy-benefits manager for Regence BlueCross BlueShield, a major insurer in the Northwest.
Drug companies call the increases misleading, because they don't account for the rebates they give. J&J says that, in fact, drug pricing had a slightly negative impact on revenue last year when rebates and discounts are considered, though the company wouldn't quantify how the givebacks compared with the price increases for Concerta or other specific drugs.
Rivals Pressure Drug Price
But Richard Evans, a former Roche Holding AG pricing official who tracks the issue at Sector & Sovereign Research, says drug-price increases overall have outpaced rebate growth. Drug prices went up an average $58.96 per prescription between 2002 and 2009, while the rebates for private health plans increased $12.57, according to his analysis.
CDPHP says that last year the price of an average prescription for a brand-name drug rose to $206.92, up 18.3% from $174.94, even accounting for rebates and other discounts.
"The rebates we get don't always go up as fast as the list prices," says Edmund Pezalla, national medical director for pharmacy policy and strategy at insurer Aetna Inc.
Prescription drugs have about $300 billion in yearly sales in the U.S. Dr. Pezalla says this drug spending contributes "directly to the total amount of health-care costs in the U.S. Those costs have to be borne by the taxpayer, to pay for government programs like Medicare and Medicaid, and they are borne by employers, who pass them on to their employees."
Novartis and other companies say they set prices based on a number of factors, including research-and-development costs.
Those expenses can continue even after a drug goes on sale. For example, Bristol-Myers and Sanofi-Aventis say they sponsored trials last year studying Plavix further, including one that led to a warning that Plavix might not work as well in patients with a certain genetic mutation. Plavix loses U.S. patent protection in May 2012, a Bristol-Myers spokeswoman says.
The top drugs surveyed by Barclays Capital account for more than half of the annual prescription drug sales in the U.S. The investment bank's Lawrence Marsh analyzes list-price data supplied by First DataBank Inc.
The overall trend indicates prices will keep climbing. In January and February, 65 of the 130 top-selling drugs had price increases averaging 8.6%, Mr. Marsh says.
Drug makers emphasize that patients don't pay much of a drug's price, if at all. "They pay whatever the co-pay is, and for patients who don't have insurance, we offer our product free of charge," says Greg Barrett, vice president of marketing in the U.S. at Daiichi Sankyo. He says Benicar is priced lower than most other drugs in its class.
Pfizer noted that it has made efforts to make Lipitor more affordable, such as recently offering to cover all but $4 of the drug's co-pay for many patients. Lipitor loses patent protection in November.
Write to Jonathan D. Rockoff at email@example.com