Brand Name Drug Prices Rise 8.3% in 2009—AARP Study

In its latest annual report, the Association of American Retired Persons (AARP) published a study by its Public Policy Institute analysing the trends in average retail prices for brand name prescription drugs used by Medicare beneficiaries. The study looked at an overall sample size of 300 widely used prescription drugs that were both generic and brand name. Specifically, 217 brand name products were studied. The following are the key observations and conclusions of the study:

• Average annual increases in retail prices for widely used brand name prescription drugs reached 7% in 2007, 7.9% in 2008, and 8.3% in 2009.
• The average annual retail price increase in 2009 for brand name drugs was higher than the rate of general inflation at -0.3%.
• Only 6 out of 217 brand name drugs in the sample study reported a drop in prices in 2009. For 26 drug makers with at least two drug products, the average rise in retail price was higher than general inflation. All 35 therapeutic categories of brand name products registered higher retail prices than the general inflation rate in the range of 3.3% to 19%.
• The average annual retail cost of therapy stood at US$1,400 per year per drug in 2009, a 32% rise since 2005.
• Of the 217 drugs, 71 drugs reported a retail price increase between 7.6–10%, 55 drugs were between 10.1–15%, 30 drugs were at 3–5%, 29 drugs were between 5.1–7.5%, 17 drugs were between 15.1–24.8%, and 9 drugs were between 0.1–2.9%.
• Since Medicare Part D's introduction on 1 January 2006, retail prices have accelerated at three specific times, with the latest being between January 2009 through June 2009, just after the presidential election.

Source: AARP

The full survey can be accessed here.

Outlook and Implications

The retail price trend in prescription drugs is not surprising, particularly the higher pace at which the average annual price rise changed in 2009 as compared to 2008. The rise reflects the higher number of challenges that pharma firms are facing with respect to sustaining growth through their current marketed drugs portfolio. One of the reasons is the "patent cliff" which has seen many blockbuster drugs witness generic competition in their markets following patent expiry. While this has meant that their market share has decreased due to lower generic drug prices, innovative firms have continued to sell their brand name drugs at higher prices while trying to maximise the commercial potential in a shrinking market for its product. The other major contributor to the rise in 2009 was the new U.S. government's healthcare reform agenda. The overhaul of the health insurance industry and legislations to curb drug spending were elements that were expected to affect drug sales, and this potentially led to higher drug prices. In fact, a similar trend was witnessed just before the Medicare drug benefits programme was implemented in 2006.

The AARP has noted that the rise in drug prices would affect Medicare beneficiaries' annual drug cost. Furthermore, the agency also indicated that the government's attempt to close the "doughnut hole" in the coming years could have a limited impact, with its value increasingly eroded if drug price rises are not curbed. In contrast, the pharmaceutical industry has maintained that higher retail drug prices are a reflection of the increasing investments into research and development of new drugs. The uncertainties of developing new drugs and the increasing regulatory challenges for new products has made the commercialisation of innovative drug products difficult.