Feds Investigating Prescription Drug Price Increases

HealthLeaders Media Staff, December 23, 2009

Health and Human Services Inspector General Daniel Levinson has agreed to a request from Sen. Bill Nelson (D-FL) to look into charges that 96% of wholesale prices of brand-name prescription drugs were sharply increased in anticipation of healthcare reform. The investigation will look at how high prices are impacting Medicare and Medicaid.

The charge stems from an AARP study, cited in a New York Times article last month, that said wholesale prices of the drugs rose around 9.3% this past fiscal year, which ended Sept. 30. This reported increase occurred as overall inflation was holding at 0.3%, according to critics of the price increase.

The increase has also caught the eyes of House legislators on the other side of Capitol Hill. Representatives Henry Waxman (D-CA), chair of the Energy and Commerce Committee, and Charles Rangel (D-NY), chair of the Ways and Means Committee, similarly have asked the Government Accountability Office to look into the charges as well.

At an Energy and Commerce Health Subcommittee hearing earlier this month on the topic, the increase in brand-name drug prices were contrasted with 8.7% decline in the price of common generic drugs during the same time. Overall, generic drugs have had an average decline in price every year since 2004, with decreases averaging between -0.6% and -11.5%, testified Stephen Schondelmeyer, PhD, professor of pharmaceutical management and economics at the University of Minnesota College of Pharmacy.

The recent increases "in prescription drug prices shocked everyone," said Waxman at the hearing. Of concern was the agreement that pharmaceutical manufacturers had pledged to cut $80 billion in costs during the next 10 years as part of an agreement to back health reform.

At the hearing, Rick Smith, senior vice president for policy and research with the Pharmaceutical Research and Manufacturers of America (PRMA), said that recent government reports had actually shown prescription drug cost slowing down "dramatically since the beginning of the decade—from a high double-digit growth rate to one in the low to mid single digits."

He added that as this slowdown in cost growth has occurred, other reports have claimed that brand drug prices are rapidly increasing, but "these reports do not reflect the way that the prescription drug market functions and therefore exaggerate prescription drug price trends."

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