Debunking Price Control Propaganda

As elections approach, many in Congress are aggressively pushing to overhaul Medicare Part D, the new prescription-drug benefit. In both the House and Senate, bills have been put forward that would effectively allow the federal government to impose price controls on prescription medicine.

Much of the impetus for these proposals comes from AARP and FamiliesUSA, both of which recently issued studies claiming that prescription drug prices have risen inordinately since the inception of Part D.

AARP found that overall drug prices climbed an average of 3.9% in the first three months of this year, which compounds to an annual rate of 16.5%.

FamiliesUSA (FUSA) came to a similar conclusion. It found that 19 of the 20 most-commonly prescribed drugs for seniors increased by more than 15% per year on average.

But has the case really been made? Are prices, in fact, rising too quickly? Or could it be that AARP and FUSA are being very selective with their data?

To find out, let’s first consider some data from more objective sources:

According to the Consumer Price Index (CPI), prescription drug prices are increasing at an annual rate of only 3.9%. That figure is about one-fourth the size—and starkly contradicts—the figures claimed by FUSA and AARP. It’s worth noting that CPI is the government’s official source of inflation data, unlike FUSA and AARP which have strong political agendas.

CPI isn’t the only nonpartisan source that sharply contradicts FUSA and AARP. The world’s leading provider of pharmaceutical data—IMS Health—says the amount paid at retail for drugs grew by only 5.4% in 2005—and by just 4% in the 12 months preceding March 2006. Prices have not increased at such low rates since 2001.

So why the discrepancy? How have FUSA and AARP come to such a different conclusion from the CPI and IMS Health.

For starters, they didn’t use the same data.

Let’s look at the FUSA report. Rather than using the prices seniors actually paid for their drugs, it instead analyzed the prices listed on Medicare’s Plan Finder tool. The problem with this method is that, in reality, the “Plan Finder” prices are higher than the final purchase price. Just like the showroom sticker on an automobile, they don’t reflect the many rebates and discounts offered by manufacturers.

The AARP study is similarly cooked. Its researchers studied changes to the “wholesale acquisition cost” of 193 brand-name medicines.  Unfortunately, the “wholesale acquisition cost” does not accurately reflect what patients actually pay.

A far more accurate measure would have been the prescription medicines component of the Consumer Price Index—which accounts for wholesale costs, negotiated discounts, distribution costs, pharmacy markups and other factors that determine what patients truly pay for drugs.

Even more troubling, both AARP and FUSA derive their results by examining only select groups of brand-name medicines. The FUSA study, in particular, looks at just 20 drugs. And neither study reflects the fact that half of all prescriptions in America today are generic. And generics are almost always far cheaper than their brand-name counterparts.

No one denies that Medicare Part D has its fair share of problems. And no one claims that things are perfect today. But price-control advocates are now attempting to cloud the facts with politically motivated research. It would be a grave shame if they succeeded.


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