June 19, 2005


Spending on pills moderates, easing healthcare costs: Generic brands and savvy buying practices have helped slow the rise in prescription-drug costs, aiding consumers. (Alexandra Marks, 6/20/05, The Christian Science Monitor)

According to the most recent data from the Centers for Medicare and Medicaid Services, spending on prescription drugs in 2003 increased 10.7 percent - down from 14.9 percent in 2002. Other independent analysts say that the decelerating trend continues today.

A variety of factors are contributing to the decline. They include the insurance companies and corporations that now use pharmacy benefit managers (PBMs) to negotiate steep discounts with drug companies and drugstores; the states that are implementing new legislation to rein in their Medicaid and pension costs; and consumers themselves, who are opting more often for less expensive generics.

"It's very significant: It shows a paradigm shift in healthcare spending," says Mark Merritt, president of the Pharmaceutical Care Management Association, which represents the nation's PBMs. "Now, neither the drugstores nor the drug companies can simply charge what they want as they did in the old days."

Twenty years ago, PBMs didn't exist. Now, they represent corporations, unions, and health insurers that are responsible for as much as 75 percent of prescription-drug purchases. By representing multiple buyers, the PBMs are able to win discounts of between 20 and 40 percent, according to Jeff Trewhitt of the Pharmaceutical Research and Manufacturers of America. PBMs have also partnered with drugstores and basically told them that if they want business from customers of the PBMs, they have to give a discount.

Among other factors: In the past two years, several major drugs, like the indigestion drug Prilosec, have lost their patent protection, allowing for generic competitors. At the same time, fewer so-called groundbreaking drugs have now come onto the market.

Moreover, safety concerns arose with the expensive and widely promoted pain relievers known as the COX-2 inhibitors, such as Bextra and Vioxx. Several of them were pulled off the market. That prompted millions of consumers to go back to using less expensive alternatives that many physicians had long contended were just as effective.

If only the erectile dysfunction drugs would start killing people we'd have deflation in medical costs too.

Posted by Orrin Judd at June 19, 2005 6:44 PM

OJ: us old guys who really need ED drugs don't have enough sex in a year to move the needle on costs. The majority of the production is going to the black market.

Posted by: Robert Schwartz at June 19, 2005 9:51 PM

OJ - keeping an eye out for a string of Nelson Rockafeller type-obits, huh?

Posted by: mike beversluis at June 19, 2005 10:27 PM