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Soaring Prices Put Drugs out of Reach for Many Americans

Pills on top of hundred dollar bill

Retail prices for more than 100 widely used specialty prescription drugs surged by nearly 11 percent in 2013, according to a new AARP Public Policy Institute (PPI) report issued today. The report found that the average annual cost of a specialty medication used to treat chronic diseases and conditions rose to more than $53,000 — greater than the U.S. median income and more than twice the $23,500 median income of people on Medicare.

Specialty- prescription-drug prices are 18 times higher than prices for brand-name prescription drugs and nearly 190 times higher than costs for generic ones, the analysis showed. The report reviewed 115 widely used specialty prescription drugs in 2013, encompassing 47 different drug manufacturers and 30 different types of treatments.

“The prices of these products have gotten so high that it’s putting them out of reach for people who need to take them,” said Leigh Purvis, PPI director of health services research and coauthor of the new report. “They have no means of staying healthy.”

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Specialty drugs that treat complex, chronic conditions are commonly used by older people and often require special administration. These medications are expected to be the fastest-growing group of drug products within the next decade — 19 of the 28 drugs approved by the Food and Drug Administration in 2013 were specialty drugs. Although these breakthrough medications are giving new hope to patients with diseases such as psoriasis, cancer, hepatitis C, multiple sclerosis, Parkinson’s disease and rheumatoid arthritis, they come with huge price tags.

More than half of the chronic-conditions specialty drugs that have been on the market since the end of 2005 have had an annual cost of therapy of more than $10,000, according to the report. Overall, spending on these drugs is projected to quadruple by 2020, to reach $400 billion, notes CVS Caremark.

Purvis said that just because people have Medicare or private insurance doesn’t mean they can afford the specialty drugs. The new breakthrough hepatitis C medications, for example, can cost Medicare Part D patients as much as $7,000 per year out of pocket. (The retail price of one of those drugs, Sovaldi, is $84,000 for a 12-week supply.)

Such costs don’t affect only those with the disease. Medicare spending on hepatitis C drugs will nearly double this year, to more than $9 billion, per recent government figures. Purvis estimates that powerful new cholesterol drugs called PCSK9 inhibitors will cost people on Medicare $3,000 a year “for the rest of their lives.” The billions in new spending is helping to drive up premiums for Medicare Part D drug plans, which are expected to increase by an average of 13 percent in 2016.

The price hike in an older drug called Daraprim, used to treat a rare parasitic infection, caused a furor this fall when Turing Pharmaceuticals, founded by Martin Shkreli, indiscriminately raised the price by 5,000 percent, from $13.50 per tablet to $750. This extreme example of price gouging is not an isolated incident, Purvis said. “Regardless of whether [the drug is] specialty, generic or brand-name, our system has nothing to stop this from happening. The reality is, it’s been like this for years,” she said. She suggested that research comparing the effectiveness of specialty drugs versus older, cheaper drugs could help hold down prices, as would allowing Medicare to negotiate prices directly with drug companies.

The pharmaceutical industry argues that research and development costs are enormous — an average of $2.6 billion per drug by one estimate — and that most drugs that begin development don’t make it to market. If the pharmaceutical companies can’t recoup those costs, they argue, they won’t be able to develop new treatments.

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Because the companies have only a finite amount of time to make exclusive profits on the medications before they need to compete with generics, the companies try to milk as much profit as possible during that window, experts say. “Drug companies know that there is going to be an end to this blank check era, and they are pushing for whatever they can get,” Stephen Schondelmeyer, an economist and pharmacist at the University of Minnesota who studies drug prices and is a coauthor of the AARP report, told Bloomberg News.

The issue has gained national attention in recent months with both presidential candidates and politicians criticising the drug industry for price gouging. The Department of Health and Human Services is holding a pharmaceutical forum Friday to discuss rising drug prices. Regardless of the reason for the price increases, the financial burden on average Americans is too high, say AARP policy experts.

“These exorbitant prices and price increases can be financially disastrous, especially for people on fixed incomes. Americans cannot continue to absorb the astronomical costs associated with these products indefinitely,” said Debra Whitman, AARP’s chief public policy officer.

A few highlights of the report:

Based on the retail prices of 115 widely used specialty prescription drugs in 2013

  • Average annual cost for one specialty medication used on a chronic basis: $53,384
  • Average annual cost was 18 times higher than the cost for brand-name drugs: $53,384 versus $2,960
  • Average annual cost was 189 times higher than the cost for generic drugs: $53,384 versus $283
  • Average annual price increase was more than 7 times higher than inflation: 10.6% versus 1.5%


Average Annual Retail Prices for Specialty, Brand Name, and Generic Drugs, 2010-2013

Source: “ Rx Price Watch Report: Trends in Retail Prices of Generic Prescription Drugs Widely Used by Older Americans: 2006 to 2013,” AARP Public Policy Institute

Photo: Habman 18/iStock

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