AARP Finds Seniors Hit Hard as Drug Price Hikes Outstrip Inflation

Price hikes for drugs used most often by Medicare beneficiaries outstripped those for other consumer goods between 2006 and 2013, according to a new report from the AARP Public Policy Institute.

Over the period covered, the year 2013 was a high water mark for rising drug costs affecting seniors, the report found. AARP’s combined market basket—a roster that includes 622 brand-name and generic drugs commonly prescribed to those in Medicare--rose 9.4%, while general inflation rose only 1.5% in the same period.

“Increases in the retail price of prescription drugs have a corresponding impact on the cost of drug therapy for the individual and all other payers,” wrote the authors, Stephen W. Schondelmeyer, PharmD, PhD, of the PRIME Institute at the University of Minnesota, and Leigh Purvis, MPA, of AARP. The average annual cost of therapy—which includes specialty drugs—was $11,341 a year, coming close to the average Social Security benefit of $15,526 a year.

The specialty therapy tier, which includes drugs for cancer, hepatitis C, or HIV, drove up costs in 2013, as many expensive cancer drugs dominated the specialty pharmacy market. The worst was yet to come, as overall therapy prices took another spike in 2014 when the hepatitis C drug Sovaldi hit the market at $1000 a day. While this class was the primary driver of rising prescription costs, generic drugs were not immune to the trend, and in fact many health plans created non-preferred generic tiers that appeared to have no other purpose than to charge consumers higher out-of-pocket costs, according to an editorial that appeared in The American Journal of Managed Care.

Seniors have been hit hard by drug pricing trends, because as gas prices and other consumer goods have remained stable, this has kept inflation flat and meant there was no increase in Social Security benefits for 2016.

Generic drug prices remain comparatively low, with 18.3% of expenditures against 69.4% of the prescriptions written. Brand-name drugs, by contrast, account for only 29.3% of the prescriptions but 64.1% of the expenditures, according the report. And specialty drugs account for 17.6% of expenditures even though the category covers only 1.2% of all prescriptions. Thus, drops in generic drug prices are more than offset by the increases in brand name and especially specialty drug prices, the authors found.

Rising drug costs don’t just affect taxpayer funded programs such as Medicare and Medicaid, the authors found. “Spending increases driven by high and growing drug prices will eventually affect all Americans in some way,” they write. “Those with private health insurance will pay higher premiums and cost sharing for their health coverage and overtime, higher drug prices could lead to higher taxes and/or cuts to public programs to accommodate increased government spending.”

The average annual cost of a therapy in the AARP basket in 2013 was more than double the cost in 2006, when the average was $5571 a year, the report found. (This was the first year of Medicare Part D.)

Of course, the average cost varied widely by category:

· The average annual therapy cost for a brand name drug was $2960 in 2013.

· The average annual therapy cost for a generic drug was $283 in 2013.

· The average annual therapy cost for a specialty therapy was $53,384 in 2013.

The cost of prescription drugs is one of the few issues that resonates with voters across the political spectrum, based on polling by the Kaiser Family Foundation and on behalf of the Campaign for Sustainable Drug Pricing (CSRxP).

“Today’s AARP report provides new evidence that drug companies are raising prescription drug prices on patients indiscriminately,” said CSRxP Executive Director John Rother. “Specialty and branded drugs alike are going up 6 times faster than inflation. The exorbitant increases make health care more expensive for families, taxpayers, and job creators and put a major strain on federal and state governments. It’s going to take market-based policy solutions to deal with this unsustainable trend.”

Heading into Super Tuesday, both the Democratic frontrunner, former Secretary of State Hillary Clinton, and the Republican frontrunner, developer Donald Trump, are on record criticizing pharmaceutical companies for high prices and calling for reforms that would allow Medicare to negotiate drug prices.