Drug cost inflation – it’s getting bad

For some time we’ve been hearing about drug costs heading back up – driven by utilization increases (the all-too-common driver) more than price. Of late, price has started to take over the lead as the main cause of drug cost inflation.
From several sources comes news that manufacturers pushed up prices for brand drugs well above medical inflation rates (never mind ‘normal’ inflation, which is much lower than medical inflation). The always-enlightening Seeking Alpha had a piece recently by Daniel S. Levine reporting that the GAO’s research of a market basket analysis of 100 commonly used drugs found “brand name prescription drug prices grew at an annual rate of 8.3 percent from 2006 through the first quarter of 2010, a faster pace than the 3.8 percent annual rise in overall medical costs.”
In total, brand drug prices increased 37.7% over the study period, while generics dropped almost 10 percent.
Fortunately for high generic users (work comp being perhaps the highest), generic drug prices fell over the same period by 2.6 percent per year.
The GAO report (opens pdf) used several pricing levels to develop their report. They examined U&C prices, which are based on the actual cash price for that drug on that day at that pharmacy, AWP, and AMP. While the different methodologies delivered slightly different results, overall, all showed pretty consistent inflation figures.
Another report from Barclays Capital [subscription required for full article] indicated brand prices for the 130 top-selling drugs by sales went up 6.9% in 2010, after an almost-identical increase of 6.8 percent in 2009.
What does this mean for you?
Push generics. And understand that brand prices are driven by brand expiration and manufacturers’ pretty-much-unfettered ability to charge what they want.