Three years ago, more than a dozen big brand-name drug companies issued a joint pledge: We will hold "price increases at or below the consumer price index," they said in a formal statement. They made the promise during a national debate over escalating health care costs, as the Clinton White House was laying part of the blame for the rises at their doors.
A survey of current pricing of all drugs, brand name and generic, suggests that the pledge has been kept, though in large part because, on average, generic drug prices have been falling. Still, some consumer groups and drug stores are unhappy, because prices of some categories of drugs, including many of the most popular prescription products, have risen much faster than inflation.
Here are the numbers, as calculated by IMS America Inc., a pharmaceutical market research firm in Plymouth Meeting, Pa., that is viewed by many on both sides of the debate as having the best price data: * Prices that drug stores, hospitals and health organizations pay for all types of drugs rose by about 1.7 percent in 1995. That was below the 2.5 percent rate of inflation last year. * Prices for brand-name drugs, which account for about 60 percent of all prescriptions filled in the United States, rose 2.9 percent, which was faster than the inflation rate. * Prices for generic drugs, which account for the other 40 percent of prescriptions in the United States, declined by 10 percent as a group.
Companies have held to the pledge "at a very broad level," said William Ristow of IMS America. "But there's no doubt that the manufacturers' list price of brand-name products is rising faster than inflation." Many of the individual top-selling drugs, both brand name and generic, have risen particularly fast.
Analysts say that drug inflation calculations are based on wholesale prices paid to drug companies by stores and medical organizations that ultimately sell the drugs to patients, but that they reflect trends in retail prices that consumers pay for the drugs.
What seems a simple question -- did companies keep their promise? -- becomes a tough one because of the byzantine system of drug pricing in the United States.
Manufacturers publish list prices, which are used as a basis to sell products to wholesalers, which then sell the drugs to hospitals, drug stores, clinics and health maintenance organizations (HMOs). But the manufacturers also offer a range of rebates and discounts to those buyers. Drug companies don't publish the rebates they give, making it harder to come up with accurate numbers.
Still, by nearly everyone's measure, overall prescription drug prices in recent years have been rising at the slowest rates in two decades.
Drug prices rose at several times the rate of inflation during the 1980s. But price hikes moderated dramatically after the Clinton White House accused the drug industry of price gouging and threatened to impose price controls.
Today, the industry says it has kept to its pledge, though it raises questions as to whether it has to. "I don't know that that pledge extended this long," said Jeffrey C. Warren, spokesman for the Pharmaceutical Research and Manufacturers of America, the trade group for the brand-name prescription drug industry.
Merck & Co., Pfizer Inc. and Glaxo Wellcome Inc. are three big drug companies that say they are adhering to their promise. But they base price increases on projected rates of inflation, which often run higher than actual rates measured by the consumer price index and thus give the companies greater leeway in fulfilling their vow. Projected rates of inflation in 1995, for example, outpaced actual rates of inflation by 1 percentage point or more.
Even so, said Pfizer spokesman Andy McCormick, the average price increase across the company's product line from 1992 through 1995 has been below the consumer price index. This year, the company expects prices to increase 2.7 percent on average. Merck and Glaxo make similar claims for their price increases in the past few years.
"Price inflation may have moderated, but that doesn't mean the problem is over," said John Coster of the National Association of Chain Drug Stores. "We all know that launch prices for new drugs are exorbitant."
Drug industry analysts say that though price inflation for brand-name drugs hasn't returned to 1980s levels, it is accelerating again now that political pressure has died down. Ristow said that in the first three months of this year, while average drug prices overall rose 1.3 percent, the manufacturers' list price for brand names rose 4.1 percent.
Drug companies have interpreted their pledge to mean average price increases across product lines, meaning they can make small increases on less popular drugs and bigger increases on others and still adhere to their promise. "These pledges are essentially meaningless because they leave tremendous wiggle room," Coster said.
Phil Sokolof, an Omaha-based millionaire who runs national campaigns to alert the public to the dangers of high-fat foods and high cholesterol, recently targeted Merck and other drug companies in ads in 40 newspapers, including The Washington Post, saying the companies charge too much for their cholesterol-lowering drugs.
He said the prices of cholesterol drugs as a group have gone up twice the rate of inflation, or 6 percent. In this category, at least, he said, "They have not adhered to their promise."
Rob Waspe, president of the Generic Pharmaceutical Industry Association, said it's ironic that brand-name companies, which generally fight generic drug makers in the marketplace and in regulatory battles, can say they have fulfilled their pledge thanks in large part to their "enemies." CAPTION: The 500 top-selling drugs represented $41.6 billion of the $49.1 billion in prescription drug sales at the wholesale level in 1994.
Sixteen percent of the top 500 drugs had a price increase in the fourth quarter of 1995.
The top 25 drugs accounted for 29.8 percent of total retail prescription purchases in 1994.
Nineteen of the top 500 drugs in 1994 came on the market that year. Although the price of all prescription drugs over the past two years has not risen as much as consumer prices overall . . . the price of many of the most popular drugs -- both generic and brand name -- has considerably outpaced the rate of inflation, even though overall generic drug prices have decreased as brand-name prices have risen. CAPTION: PERCENT RISE IN PRICE FROM JULY 1993 TO JULY 1996 Top five generic drugs Hydrocodone APAP
9% Acetaminophen Codeine 30 mg. Tab
26% Propopxyphene Napsylate/APAP
11% Brand name Premarin 0.625 mg. Tab 100's
22.7% Synthroid 0.15 mg. Tab 100's
19.4% Zantac 150 mg. Tab 60's
7.8% Lanoxin 0.25 mg. Tab 100's
13.7% Procardia XL Tab 100's
11.4% CPI 8.5%