Prescription Drugs
Trends in Usual and Customary Prices for Drugs Frequently Used by Medicare and Non-Medicare Health Insurance Enrollees Gao ID: GAO-07-1201R September 7, 2007Prescription drug spending as a share of national health expenditures increased from 8.9 percent in 2000 to 10.1 percent in 2005--among the fastest growing segments of health care expenditures--and prescription drug prices outpaced inflation during the same period. Rising prescription drug prices can affect consumers, employers, and federal and state governments. Federal policymakers are particularly concerned about rising drug prices as the federal government has assumed greater financial responsibility for prescription drug expenditures with the introduction of a prescription drug benefit to Medicare enrollees in January 2006, known as Medicare Part D. Medicare enrollees are also responsible for a share of drug costs under the Medicare Part D program. As an update to our 2005 report, this report responds to the request from Congress for information on trends in retail prices--known as usual and customary prices--for prescription drugs frequently used by Medicare enrollees and non-Medicare health insurance enrollees. This report focuses on (1) usual and customary price trends from January 2004 through January 2007, and (2) usual and customary price trends from January 2000 through January 2007 for the subset of drugs that were included in both our 2005 report and the current report.
GAO found that the average monthly usual and customary prices reported by two state pharmacy assistance programs increased 13.6 percent from January 2004 through January 2007 for a typical 30-day supply of the 122 prescription drugs frequently used by BCBS FEP Medicare or non-Medicare enrollees. This represents a 4.3 percent average annual rate of increase. Prices increased at similar rates for the 96 drugs frequently used by BCBS FEP Medicare enrollees and the 91 drugs frequently used by BCBS FEP non-Medicare enrollees. We also found that the average monthly usual and customary prices decreased for the 57 generic drugs and increased for the 65 brand drugs from January 2004 through January 2007. Specifically, the generic drug prices decreased 12.8 percent, a 4.5 percent average annual rate of decrease, while the brand drug prices increased 21.2 percent, a 6.6 percent average annual rate of increase. During the same period, based on nationwide data from the Bureau of Labor Statistics, prices for all consumer items for all urban consumers--the Consumer Price Index (CPI)--increased 9.3 percent, a 3.0 percent average annual rate of increase. We also found that from January 2000 through January 2007, average monthly usual and customary prices increased at a faster rate for the 44 brand drugs than for the 43 generic drugs. Specifically, prices for the brand drugs increased 48.6 percent, a 5.8 percent average annual rate of increase, while prices for the generic drugs increased 7.1 percent, a 1.0 percent average annual rate of increase. During this same period the CPI increased 19.9 percent, a 2.6 percent average annual rate of increase.
GAO-07-1201R, Prescription Drugs: Trends in Usual and Customary Prices for Drugs Frequently Used by Medicare and Non-Medicare Health Insurance Enrollees
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September 7, 2007:
The Honorable Olympia J. Snowe:
Ranking Member:
Committee on Small Business and Entrepreneurship:
United States Senate:
The Honorable Ron Wyden:
United States Senate:
Subject: Prescription Drugs: Trends in Usual and Customary Prices for
Drugs Frequently Used by Medicare and Non-Medicare Health Insurance
Enrollees:
Prescription drug spending as a share of national health expenditures
increased from 8.9 percent in 2000 to 10.1 percent in 2005--among the
fastest growing segments of health care expenditures[Footnote 1]--and
prescription drug prices outpaced inflation during the same period.
Rising prescription drug prices can affect consumers, employers, and
federal and state governments. Federal policymakers are particularly
concerned about rising drug prices as the federal government has
assumed greater financial responsibility for prescription drug
expenditures with the introduction of a prescription drug benefit to
Medicare enrollees in January 2006, known as Medicare Part D. Medicare
enrollees are also responsible for a share of drug costs under the
Medicare Part D program.
As an update to our 2005 report,[Footnote 2] this report responds to
your request for information on trends in retail prices--known as usual
and customary prices[Footnote 3]--for prescription drugs frequently
used by Medicare enrollees and non-Medicare health insurance enrollees.
This report focuses on (1) usual and customary price trends from
January 2004 through January 2007, and (2) usual and customary price
trends from January 2000 through January 2007 for the subset of drugs
that were included in both our 2005 report and the current report.
To report usual and customary price trends from January 2004 through
January 2007, we obtained prices as reported by retail pharmacies to
state pharmaceutical assistance programs for the elderly in New York
and Pennsylvania. We used data from New York's Elderly Pharmaceutical
Insurance Coverage (EPIC) and Pennsylvania's Pharmaceutical Assistance
Contract for the Elderly (PACE) programs because we did not identify a
reliable national source of usual and customary price data.[Footnote 4]
In order to track usual and customary price trends, we created price
indexes that measure the average change in prices over time for a
basket of drugs. We created indexes to track price changes for the
following five baskets of drugs:
* 122 of the drugs most frequently used by Medicare or non-Medicare
enrollees in the Blue Cross Blue Shield (BCBS) Federal Employee Program
(FEP),
* 96 of the drugs most frequently used by BCBS FEP Medicare enrollees,
* 91 of the drugs most frequently used by BCBS FEP non-Medicare
enrollees,
* 65 of the brand drugs most frequently used by BCBS FEP Medicare and
non-Medicare enrollees, and:
* 57 of the generic drugs most frequently used by BCBS FEP Medicare and
non-Medicare enrollees.
To report usual and customary price trends from January 2000 through
January 2007, we tracked average monthly prices for the 44 brand and 43
generic drugs frequently used by BCBS FEP Medicare and BCBS FEP non-
Medicare health insurance enrollees that were included in both the 2005
report and current report. We created an index for the brand and an
index for the generic drugs.
Our analyses are limited to the usual and customary prices reported by
retail pharmacies in New York to the EPIC program and in Pennsylvania
to the PACE program by retail pharmacies for drugs frequently used by
BCBS FEP Medicare enrollees or non-Medicare enrollees. Our findings
cannot be generalized to all usual and customary prices nationally for
all drugs. We reviewed all data for reasonableness and consistency and
determined that the data were sufficiently reliable for our purposes.
We performed our work from November 2006 through August 2007 in
accordance with generally accepted government auditing standards. (See
enc. I for a description of our scope and methodology.)
In summary, we found that the average monthly usual and customary
prices reported by the two state pharmacy assistance programs increased
13.6 percent from January 2004 through January 2007 for a typical 30-
day supply of the 122 prescription drugs frequently used by BCBS FEP
Medicare or non-Medicare enrollees. This represents a 4.3 percent
average annual rate of increase. (See encs. II and III.) Prices
increased at similar rates for the 96 drugs frequently used by BCBS FEP
Medicare enrollees and the 91 drugs frequently used by BCBS FEP non-
Medicare enrollees. (See enc. IV.) We also found that the average
monthly usual and customary prices decreased for the 57 generic drugs
and increased for the 65 brand drugs from January 2004 through January
2007. Specifically, the generic drug prices decreased 12.8 percent, a
4.5 percent average annual rate of decrease,[Footnote 5] while the
brand drug prices increased 21.2 percent, a 6.6 percent average annual
rate of increase. (See enc. V.) During the same period, based on
nationwide data from the Bureau of Labor Statistics, prices for all
consumer items for all urban consumers--the Consumer Price Index (CPI)-
-increased 9.3 percent, a 3.0 percent average annual rate of increase.
We also found that from January 2000 through January 2007, average
monthly usual and customary prices increased at a faster rate for the
44 brand drugs than for the 43 generic drugs. Specifically, prices for
the brand drugs increased 48.6 percent, a 5.8 percent average annual
rate of increase, while prices for the generic drugs increased 7.1
percent, a 1.0 percent average annual rate of increase. (See encs. VI
and VII.) During this same period the CPI increased 19.9 percent, a 2.6
percent average annual rate of increase.
We did not obtain external comments on a draft of this report because
we did not evaluate the programs of the organizations that provided us
data they had collected.
As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from its date. At that time, we will send copies of this report to
relevant congressional committees and other interested members. The
report will also be available at no charge on GAO's Web site at
[hyperlink, http://www.gao.gov].
If you or your staffs have any questions regarding this report, please
contact me at (202) 512-7114 or dickenj@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Randy Dirosa, Assistant Director; Rashmi
Agarwal; Martha R. W. Kelly; Daniel Ries; and Stephen Ulrich were major
contributors to this report.
Signed by:
John E. Dicken Director, Health Care Issues:
Enclosures - 7:
Enclosure I: Scope and Methodology:
To examine the change in average monthly usual and customary prices for
prescription drugs frequently used by Medicare enrollees and other non-
Medicare health insurance enrollees from January 2004 through January
2007, we used data from several sources. To identify 122 of the most
frequently used drugs for which we examined usual and customary price
trends, we first identified the 100 prescription drugs most frequently
dispensed through retail pharmacies in 2004 to Blue Cross Blue Shield
(BCBS) Federal Employee Program (FEP) Medicare enrollees and the 100
drugs most frequently dispensed to BCBS FEP non-Medicare
enrollees.[Footnote 6] Combined, these two lists included 133 unique
drugs.[Footnote 7] We obtained usual and customary prices for drugs as
reported by retail pharmacies to New York's Elderly Pharmaceutical
Insurance Coverage (EPIC) program and Pennsylvania's Pharmaceutical
Assistance Contract for the Elderly (PACE) program from January 2004
through January 2007.[Footnote 8] We collected prices based on National
Drug Codes (NDC)[Footnote 9] and a common number of units (such as
tablets), typically for a 30-day supply. Based on combined EPIC and
PACE program data, we analyzed data for 122 of the 133 drugs that had
prices reported for every month from January 2004 through January 2007.
We created price indexes to measure the average change in prices for
these 122 drugs from January 2004 through January 2007.[Footnote 10] To
determine the average price of a basket of all or a subset of these 122
drugs for each month, we weighted the average monthly price of each
drug in the basket based on the number of prescriptions dispensed in
2004 to BCBS FEP Medicare and non-Medicare enrollees.[Footnote
11],[Footnote 12] We standardized the average monthly price for each
basket with a value of 100 as of January 2004. We created indexes to
track price changes for the following five baskets of drugs:
* 122 of the drugs most frequently used by BCBS FEP Medicare or non-
Medicare enrollees,
* 96 of the drugs most frequently used by BCBS FEP Medicare enrollees,
* 91 of the drugs most frequently used by BCBS FEP non-Medicare
enrollees,[Footnote 13]
* 65 of the brand drugs most frequently used by BCBS FEP Medicare and
non-Medicare enrollees, and:
* 57 of the generic drugs most frequently used by BCBS FEP Medicare and
non-Medicare enrollees.
To examine the change in usual and customary drug prices from January
2000 through January 2007, we analyzed average monthly usual and
customary price trends for the 44 brand and 43 generic drugs that were
included in both this report and our 2005 report.[Footnote 14] We
calculated indexes from January 2000 through January 2007 for brand
drugs and generic drugs based on each drug's share of the total number
of brand or generic prescriptions dispensed to BCBS FEP Medicare and
non-Medicare enrollees in 2004. We similarly assigned each index a
value of 100 as of January 2000.
For all price trend indexes we report, we identified the drugs with
exceptionally large changes in price from the beginning to the end of
the period, which we defined as two or more standard deviations from
the average price change for all drugs in the index. We then determined
how these drugs affected the reported price change in the index. In
most cases, these drugs did not affect the overall index change by more
than 3 percentage points. However, in one instance such drugs accounted
for about two-thirds of the index change, and in this instance we
reported the drugs by name and noted their influence on the index.
Our analyses are limited to drugs frequently used by Medicare enrollees
and by non-Medicare enrollees in the 2004 BCBS FEP. In addition, our
analyses are limited to prices reported by retail pharmacies in New
York to the EPIC program and by retail pharmacies in Pennsylvania to
the PACE program. Our findings cannot be generalized to all usual and
customary prices nationally for all drugs. We reviewed all data from
the BCBS FEP and the EPIC and PACE programs for reasonableness and
consistency, including screening for outlier prices and ensuring that
the price trends and frequently used drugs were generally consistent
with other data sources. We determined that these data were
sufficiently reliable for our purposes. We performed our work from
November 2006 through August 2007 in accordance with generally accepted
government auditing standards.
[End of section]
Enclosure II:
Figure: Index of Average Usual and Customary Prices for 122 Drugs
Frequently Used by BCBS FEP Medicare and Non-Medicare Enrollees, by
Month, January 2004 through January 2007:
[See PDF for image]
Source: GAO analysis of data from BCBS FEP and the EPIC and PACE
programs.
Note: The index value of 113.6 indicates a 13.6 percent increase in
average usual and customary prices during the period.
[End of figure]
[End of section]
Enclosure III:
Figure: Annual Change in Usual and Customary Prices for 122 Drugs
Frequently Used by BCBS FEP Medicare and Non-Medicare Enrollees,
January 2004 through January 2007:
[See PDF for image]
Source: GAO analysis of data from BCBS FEP and the EPIC and PACE
programs.
[End of figure]
[End of section]
Enclosure IV:
Figure: Indexes of Average Usual and Customary Prices for 96 Drugs
Frequently Used by Medicare Enrollees and 91 Drugs Frequently Used by
Non-Medicare Enrollees in the BCBS FEP, by Month, January 2004 through
January 2007:
[See PDF for image]
Source: GAO analysis of data from BCBS FEP and the EPIC and PACE
programs.
Note: The index values of 113.8 and 113.4 indicate an increase in
average usual and customary prices of 13.8 and 13.4 percent for
Medicare and non-Medicare enrollees, respectively, during the period.
[End of figure]
[End of section]
Enclosure V:
Figure: Indexes of Average Usual and Customary Prices for 65 Brand and
57 Generic Drugs Frequently Used by BCBS FEP Medicare and Non-Medicare
Enrollees, by Month, January 2004 through January 2007:
[See PDF for image]
Source: GAO analysis of data from BCBS FEP and the EPIC and PACE
programs.
Notes: The index value of 121.2 indicates a 21.2 percent increase in
average usual and customary prices for brand drugs during the specified
period. The index value of 87.2 indicates a 12.8 percent decrease in
average usual and customary prices for generic drugs during the period.
Two drugs alone accounted for about 8.6 percentage points of the 12.8
percent decrease in the prices for generic drugs. The antibiotic
Ciprofloxacin HCl 500 mg dropped 54.0 percent in price and the
antidepressant Fluoxetine 20 mg dropped 25.7 percent in price.
[End of figure]
[End of section]
Enclosure VI:
Figure: Indexes of Average Usual and Customary Prices for 44 Brand and
43 Generic Drugs Frequently Used by BCBS FEP Medicare and Non-Medicare
Enrollees, by Month, January 2000 through January 2007:
[See PDF for image]
Source: GAO analysis of data from BCBS FEP and the EPIC and PACE
programs.
Note: The index values of 148.6 and 107.1 indicate increases in the
average usual and customary prices of 48.6 and 7.1 percent for brand
and generic drugs, respectively, during the period.
[End of figure]
[End of section]
Enclosure VII:
Figure: Annual Change in Usual and Customary Prices for 44 Brand and 43
Generic Drugs Frequently Used by BCBS FEP Medicare and Non-Medicare
Enrollees, January 2000 through January 2007:
[See PDF for image]
Source: GAO analysis of data from BCBS FEP and the EPIC and PACE
programs.
[End of figure]
[End of section]
Footnotes:
[1] Percentages are based on national health expenditure data prepared
by the Centers for Medicare & Medicaid Services, Office of the Actuary,
National Health Statistics Group.
[2] See GAO, Prescription Drugs: Price Trends for Frequently Used Brand
and Generic Drugs from 2000 through 2004, GAO-05-779 (Washington, D.C.:
Aug. 15, 2005).
[3] The usual and customary price is the price an individual without
prescription drug coverage would pay at a retail pharmacy.
[4] The EPIC and PACE programs are among the largest and longest-
running state pharmaceutical assistance programs and they collected
data from thousands of retail pharmacies on usual and customary prices
for drugs in these two states.
[5] Two drugs alone accounted for about 8.6 percentage points of the
12.8 percentage point decline in the prices for generic drugs. The
antibiotic Ciprofloxacin HCl 500 mg dropped 54.0 percent in price, and
the antidepressant Fluoxetine 20 mg dropped 25.7 percent in price.
[6] BCBS FEP covered more than 70 million prescriptions dispensed to
enrolled federal employees, retirees, and their dependents in 2004.
Retail prescriptions for the 122 drugs that we included in our analyses
represented about 32 percent of total prescriptions dispensed to BCBS
FEP enrollees in 2004.
[7] Drugs with the same name but with different strengths or dosage
forms (such as capsules or tablets) were counted separately as unique
drugs.
[8] The EPIC program covered more than 10 million prescriptions
dispensed mostly to low-income seniors in 2004, and the PACE program
covered more than 9 million such prescriptions.
[9] NDCs are three-segment numbers that are the universal product
identifiers for drugs for human use. The Food and Drug Administration
assigns the first segment of the NDC, which identifies the firm that
manufactures, repackages, or distributes a drug. The second segment
identifies a specific strength, dosage form, and formulation for a
particular firm. The third segment identifies the package size and
type. A drug can have multiple NDCs associated with it. For example, a
drug made by one manufacturer, in one strength or dosage form, but in
three package sizes would have three NDCs.
[10] To improve data reliability, we removed as outliers any claims for
which the reported usual and customary price was more than two standard
deviations from the mean price for each drug in each month.
[11] The 2004 BCBS FEP retail prescription drug utilization weights
applied to the EPIC and PACE program retail prices were held constant
throughout the period of analysis to isolate the effects of changes in
prices from the effect of changes in utilization, such as the
substitution of lower priced generic drugs for higher priced brand
drugs.
[12] BCBS FEP retail prescriptions represent various days supply (such
as 34-or 90-day supplies), while EPIC and PACE program price data are
limited only to retail prescriptions for a 30-day supply.
[13] Sixty-five of the 122 drugs were frequently used by both the
Medicare and non-Medicare enrollees. While these 65 drugs were used in
calculating both the Medicare and non-Medicare usual and customary
price indexes, the drugs had different weights in each index depending
on the frequency of prescriptions dispensed to Medicare enrollees or
non-Medicare enrollees.
[14] See GAO, Prescription Drugs: Price Trends for Frequently Used
Brand and Generic Drugs from 2000 through 2004, GAO-05-779 (Washington,
D.C.: Aug. 15, 2005). For the 2005 report, EPIC and PACE program
officials removed outlier prices by removing any claims where the usual
and customary price exceeded 15 times the state's reimbursed price
before providing us with the data. For the current report, we received
all prices and removed the claims for which the price was more than two
standard deviations from the mean for each drug for each month. To
ensure a valid comparison of prices across the periods of both studies,
we removed outliers from the data collected for the current report
following the approach used by EPIC and PACE program officials for the
2005 report.
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