Drug Prices Up Sharply in Early 2004

WASHINGTON – Drug makers raised prescription prices by nearly triple the rate of inflation in the first three months of this year — just before Medicare (search) began its pharmacy discount card program — negating much of the savings the government promised to seniors, according to an AARP (search) survey released Wednesday.

Prices rose by 3.4 percent among the top 200 brand-name drugs while inflation in general was 1.2 percent in the first quarter of 2004, the study said. It tracked the prices pharmaceutical companies charge drug wholesalers.

Most of the top 10 selling drugs increased more than the average, led by Bristol-Myers Squibb's Plavix. The price of the blood thinner increased by 7.9 percent, the 35 million-member AARP said.

Merck and Co. raised the price of Fosamax for osteoporosis by 4.9 percent while the most popular forms of Celebrex, a pain reliever, and cholesterol-reducing Lipitor — both made by Pfizer — increased by 5 percent and 4.6 percent, respectively.

"Manufacturers are offsetting discounts with prices that are higher than they otherwise would have been," John Rother, AARP's policy director, said at a news conference.

The Medicare card program began in June, although companies started advertising their prices in late April. The Bush administration says the average savings on brand-name drugs is 11 percent to 18 percent for discount card holders.

Under the program, companies that offer the discount card negotiate lower prices with drug companies and pharmacies.

Medicare beneficiaries can buy the cards for up $30 and get discounts on drugs they purchase at neighborhood pharmacies or by mail order. Poor people get the cards free, plus $600 a year to fill their prescriptions. Several drug companies will provide their products at little or no cost once that aid is exhausted.

Mark McClellan, the administration's Medicare chief, said in an interview that people who use the cards are seeing significant savings. "None of our beneficiaries should be paying anything close to list prices for drugs and more help is available than ever before," McClellan said.

Since the program began — after the price increases — the lowest prices available with a discount card have been essentially unchanged for Celebrex, Fosamax and Lipitor, three-best selling drugs that The Associated Press has been tracking.

All can be bought at roughly the same prices through the online pharmacy drugstore.com and for much less in Canada.

AARP gave crucial backing to the new Medicare law, but has been a vocal critic of pharmaceutical manufacturers and their congressional allies who have resisted legalizing imports of prescription medicines from Canada and elsewhere. The seniors group also has urged drug makers to limit price increases to the rate of inflation, to no avail.

Rother singled out Bristol-Myers and Pfizer, which between them produce 12 of the 25 top-selling drugs. Bristol Myers-Squibb prices rose 7.2 percent while Pfizer increased its prices 4.8 percent in the first three months of 2004, AARP said.

Pfizer spokeswoman Laura Glick acknowledged the prices went up, but said those are annual increases that typically occur in January. "And that doesn't include mandatory government discounts and other negotiated discounts," Glick said, "We are committed to responsible pricing."

Bristol-Myers spokesman Rob Hutchison said the company spends an average of $800 million on each new drug it develops. "The prices of our innovative medicines reflect the research needed to discover and develop them," he said.

Despite the increase in Fosamax, Merck & Co. showed average price increases of 1.6 percent. It has acknowledged raising the price of the painkiller Vioxx by 4.8 percent in March. AARP showed no increase in the price of Vioxx, but said the higher price shows up in its April data.

The gap between inflation and price increases is especially significant for older Americans who rely on Social Security income. Social Security increases are based on the Consumer Price Index, the government's most closely watched inflation measure.

As the gap widens, seniors' purchasing power is diminished. AARP and Families USA, a consumer group, released similar studies last month showing that drug prices have increasingly outpaced inflation in recent years.

The new report finds that trend undiminished.

The report excluded generic drugs, which make up roughly half of all prescriptions written in the United States, but only about 10 percent of the dollar value. Rother defended the use of wholesale prices, rather than prices paid by consumers, saying changes in wholesale prices are reflected at the retail level.