Martin Shkreli grabbed headlines last August when his company hiked the price of a prescription drug to treat the parasitic infection toxoplasmosis by 5,000 percent.
While Shkreli’s move might have been the most audacious example, a new report from the AARP Public Policy Institute found that retail prices for prescription drugs widely used by older Americans increased more than the general inflation rate every year from 2006 to 2013, the most recent year covered in the report.
“There is absolutely nothing in the U.S. health system that stops drug manufacturers from increasing their prices,” said coauthor Leigh Purvis, director of health services research at the AARP Public Policy Institute.
In other words, she said, pharmaceutical companies hike their prices because they can. They’re not worried about losing customers as a result, Purvis said. “I think they realize that we’re a captive audience.”
In 2013, the average price of a prescription drug was more than $11,000 per year for 622 widely used medications, write the authors. The average annual price increase that year was 9.4 percent —more than six times higher than the 1.5 percent general inflation rate, according to the report. By contrast, the drugs’ average annual price in 2005 was $4,140.
At a personal level, it’s really important to talk to your doctor and pharmacist to see whether there are any lower-cost drugs available.
— Leigh Purvis, AARP Public Policy Institute
Those are not the out-of-pocket costs that consumers pay at the pharmacy, but rather the total amount billed to an employer- or government-sponsored health plan. Still, the authors write, “Those with private health insurance will pay higher premiums and cost sharing for their health care coverage and, over time, higher drug prices could also lead to higher taxes and/or cuts to public programs to accommodate increased government spending.”
Two-thirds of the widely used drugs in the report’s “market basket” (the group of 622) were on the market for the entire 2005 to 2013 period. Cumulatively, their average retail price rose 81 percent over that time, compared to an 18.4 percent increase in general inflation during the same period, according to the report.
Salaries Not Keeping Pace
Americans’ incomes aren’t rising nearly as much as prescription drug prices, according to the report. The authors note that the average yearly cost of $11,341 for widely used drugs in 2013 was:
- Nearly three-quarters of the average Social Security retirement benefit of $15,526.
- Nearly half of Medicare beneficiaries’ median income of $23,500.
- More than a fifth of the average U.S. household income of $52,250.
Specialty drug products had the biggest price jumps of all. The report defines such medications as those that treat complex, chronic conditions and are administered by injection. In addition, specialty drugs cost more than $1,000 per prescription or more than $33 per day, according to the report.
The average annual price of specialty drugs in 2013 was $53,384, compared to $2,960 for non-specialty brand-name prescription drugs and $283 for generic prescription drugs. “Specialty drugs are expected to be the fastest growing group of drug products in the next decade,” note Purvis and her coauthor, Stephen Schondelmeyer of the University of Minnesota.
Certain categories of drugs, such as those to treat cancer, have seen particularly high price increases, often costing $100,000 or more per year, Purvis said. Newer medications have higher prices, setting off a “race to the top” as manufacturers of older drugs realize that they can raise their prices closer to their new competitors’, she said.
Steps You Can Take
What can consumers do to deal with rising drug prices? “At a personal level, it’s really important to talk to your doctor and pharmacist to see whether there are any lower-cost drugs available,” Purvis said.
Many pharmaceutical companies offer “patient assistance programs” that provide uninsured, low-income individuals with free medications, she said. Whether companies simply pass the costs of patient assistance programs on to paying customers isn’t known, Purvis said.
“We recognize that too often patients struggle with access to their medicines at the pharmacy,” said Holly Campbell, a spokeswoman for the Pharmaceutical Research and Manufacturers of America, or PhRMA, a prescription drug industry organization.
“Even as more Americans have coverage, many more patients are facing high pharmacy deductibles, rising out-of-pocket costs and other barriers to care, putting their ability to stay on needed therapy at risk,” Campbell said.
Still, Campbell called the AARP report “misleading” because it “misrepresents the dynamics of the U.S. prescription medicine marketplace.” The report understates the pricing impact of generic drugs on brand-name drugs, she said, and it ignores the discounts and rebates negotiated by insurers and pharmacy benefit managers.
To Purvis, though, the bottom line of her report is simple. Someone has to pay for prescription drugs, and “medical innovation is meaningless if no one can afford to use it.”