Report to the President: Prescription Drug Coverage, Spending, Utilization, and Prices.. 2.1 Drug Prices Faced by the Elderly

04/01/2000

The determinants of drug spending described above operate primarily through the drug selection decisions made by Medicare beneficiaries and their physicians. However, drug prices can be an important factor, particularly for those beneficiaries without stable drug coverage. The question most frequently asked in this regard is: Do Medicare beneficiaries pay more for their prescriptions than other Americans ? The underlying issue is whether the prices for drugs commonly used to treat age-related chronic conditions are either higher or increasing at a faster rate than drugs used for other diseases. Research on this question is difficult because drug prices vary greatly depending on the payor, and private payors rarely disclose their pricing practices. For this reason, most attempts to compare prices across age and disease groups are based on standardized price listings such as the Average Wholesale Prices (AWP), the Producer Price Index (PPI), or the average retail price (ARP). Highlights from three recent studies show that:

  • Of the five best-selling drugs used by older Americans in 1997, the average retail pharmacy price (undiscounted) ranged from 78 percent to 299 percent higher than the “best price” negotiated by the Department of Veterans Affairs. (US House of Representatives, 1999).
  • The AWP for the 50 prescription drugs most frequently used by the elderly rose more than four times the rate of inflation during calendar year 1998. Over the past five years (1994-1999), the AWP prices of these same drugs rose at twice the level of inflation. During the same period, 22 of the 50 most commonly used drugs by seniors had generic or co-marketed versions available for some portion of the time (Families USA, 1999).
  • Between 1990 and 1996, changes in the Producer Price Index (PPI) for drugs in therapeutic classes most frequently prescribed to elders were 51 percent for anticonvulsants, 39 percent for cancer products, 42 percent for cardiovascular agents, 38 percent for diabetes products, 45 percent for diuretics, and 53 percent for nutrients and supplements (Berndt, et al., 1998). Despite these high inflation rates, the authors found no evidence of age-related price inflation differentials at the producer level.

These studies do not resolve the issue of whether age-related price discrimination exists in the market for drug products because of what happens to prices at different points in the chain of distribution. For example, Berndt et al., (1998) found no systematic age-related difference in price increases at the juncture between manufacturer and wholesaler for three classes of drugs (antibiotics, antidepressants, and calcium channel blockers), but from the wholesaler to the pharmacy one of the three classes (antibiotics) showed more rapid growth for the elderly than the young. Furthermore, at the point where the patient makes the purchase in the pharmacy, relative age-related prices for antidepressants favored the young rather than the aged (Berndt, et al., 1998).

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