Helped by Generics, Inflation of Drug Costs Slows

By Stephanie Saul
New York Times (excerpted)
September 21, 2007

As overall health care costs continue to rise sharply, prescription drugs have emerged as a surprising exception. Annual inflation in drug costs is at the lowest rate in the three decades since the Labor Department began using its current method of tracking prescription prices. The rate over the last 12 months is 1 percent, according to the government's latest data, released Wednesday.

As recently as 2005, inflation in drug prices was running at an annual rate of 4.4 percent. Economists say the slowdown has come about because more people are turning to generics and because generic versions of some of the most common drugs have recently come on the market.

In the past year and a half alone, generic equivalents have become available for the cholesterol treatment Zocor, the sleeping pill Ambien and the blood pressure drug Norvasc.

Another factor could be the so-called Wal-Mart effect. Last fall, Wal-Mart began offering many generic prescriptions at $4 a month. Target quickly announced a similar plan, and Kmart expanded its program, which offers a 90-day supply of generic drugs for $15. Other retailers have followed with their variations. Publix, a grocery store chain with 684 pharmacies in five states in the Southeast, announced last month that it would not charge for prescriptions for seven commonly used antibiotics.

To be sure, the government still expects spending on medications to rise, to nearly $500 billion a year within a decade, up from an estimated $275 billion this year. That will happen as more people take more drugs and as new drugs are introduced. Also, costs are likely to soar in some specialized categories like cancer treatments and biotechnology drugs.

And yet for the average household, the drug index is perhaps a better reflection of the actual day-to-day impact of prices for their most commonly used drugs, like antibiotics, blood pressure pills and cholesterol medicines. According to the nonprofit Kaiser Family Foundation, in 2006 the average brand-name prescription cost more than three times the average generic: $111, compared with $32.

Generics made up 63 percent of prescriptions dispensed in the United States in 2006, up 13 percent from 2005. Wal-Mart's list of discounted generics includes fewer than 350 drugs. On Tuesday, Wal-Mart announced that, beginning next year, 2,400 generics would be available to its employees at $4 a month. The company has also indicated that later this month it may make an announcement regarding its generic drug program for consumers.