Prescription Drugs:

Trends in Usual and Customary Prices for Commonly Used Drugs

GAO-11-306R: Published: Feb 10, 2011. Publicly Released: Mar 14, 2011.

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Prescription drug spending in 2009 totaled approximately $250 billion, of which $78 billion--or about 31 percent--was spent by the federal government. Prescription drug spending by the federal government, patients, and third-party payers, including employers, is driven by many factors, including the prices paid for drugs. In 2007 we reported on trends in retail prices--known as usual and customary (U&C) prices--for prescription drugs. We found that the average U&C price for the commonly used brand-name prescription drugs we reviewed increased about 6 percent per year from January 2000 through January 2007. Some media reports have suggested that prescription drug prices may have increased more during the debate leading up to passage of the Patient Protection and Affordable Care Act (PPACA) in March 2010 compared to other recent years. We were requested to examine recent trends in drug prices for brand-name and generic pharmaceuticals. In this report, we (1) examine U&C price trends for commonly used prescription drugs from 2006 through the first quarter of 2010, the latest available data at the time of our analysis, and compare these trends to those of other medical consumer goods and services, and (2) examine price trends using drug prices other than U&C. Congress also asked us to provide information on the extent to which prices for individual brand-name drugs changed over the course of this analysis period. In order to determine U&C price trends from 2006 through the first quarter of 2010, we selected four baskets of drugs that were commonly used by consumers during our analysis period. To select our baskets, we used prescription drug utilization data from the Blue Cross Blue Shield Federal Employee Program (BCBS FEP), a large, nationwide insurance plan that covers nearly 5 million individuals. We selected the first basket of drugs based on drug name in order to examine overall price trends of both brand-name and generic drugs. We used BCBS FEP utilization data to identify 100 commonly used drugs, and we considered the brand-name and generic versions to be distinct drugs with distinct levels of utilization. We selected the second and third baskets of drugs to examine trends for brand-name and for generic drugs separately. The second and third baskets of drugs were subsets of the first basket and contained the 55 brand-name and the 45 generic drugs, respectively, from the first basket of 100 drugs. We selected the fourth basket of drugs in order to account for the growing national shift in consumer utilization from brand-name to generic versions of drugs. We used BCBS FEP utilization data to again select 100 commonly used drugs--this time based on the active ingredient rather than drug name. In selecting this fourth basket of drugs based on active ingredient, we considered the brand-name and generic versions of drugs with the same active ingredient to be the same drug. The degree of overlap between the contents of the fourth basket and the first basket was high: at least 95 percent of the utilization in one basket was also in the other.

We found that the U&C price index for our first basket of 100 commonly used prescription drugs increased at an average annual rate of 6.6 percent from 2006 through the first quarter of 2010 compared with a 3.8 percent average annual increase in the consumer price index for medical goods and services (medical CPI). The increase in the price index from the first quarter of 2009 through the first quarter of 2010--prior to passage of health reform in March 2010--was 5.9 percent, less than the increase for the 2 years prior but higher than in 2006. We also found that the U&C price index for our second basket of 55 brand-name drugs increased at an average annual rate of 8.3 percent during our time period. In contrast, the U&C price index for our third basket of 45 generic drugs decreased at an average annual rate of 2.6 percent. Finally, when shifts in consumer utilization between brand-name and generic versions of the same drug were included in the analysis using our fourth basket of drugs selected by active ingredient, the U&C price index increased about 2.6 percent per year, a much lower rate than the 6.6 percent annual increase observed when shifts in utilization were not included. We found that price trends for the 100 drugs in our first basket as measured using drug prices other than U&C also increased from 2006 through the first quarter of 2010, but at a somewhat slower rate than the 6.6 percent rate for the U&C price index. For example, the average wholesale prices (AWP) price index increased at an average annual rate of 6.0 percent while the average manufacturer prices (AMP) price index increased at an average annual rate of 5.3 percent. The Part D price index--which was measured from 2007 through the first quarter of 2010--increased at an average annual rate of 6.8 percent, slightly less than the U&C price index of 7.0 percent when measured across the same period.

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