New Price Data on Prescriptions

By ELYSE TANOUYE and PHILIP CONNORS
Staff Reporters of THE WALL STREET JOURNAL

According to a new analysis by a major pharmacy-benefits manager, the prices of several top-selling brands of prescription drugs -- including some of the most commonly used medications -- jumped 10% to 20% over a recent two-year period.

Clinton Says Debt Can Be Erased by 2015 Because of Surplus

The findings, by Express Scripts Inc., will add fuel to the already raging debate in Washington over whether prescription-drug coverage should be added to Medicare, the federal health program for 39 million elderly and disabled. Tuesday afternoon, President Clinton is scheduled to unveil his Medicare-overhaul plan, which calls for providing drugs to all Medicare beneficiaries.

"Each side will use this report to its benefit," says Bruce Vladeck, professor of health policy and geriatrics at Mount Sinai School of Medicine in New York. "The advocates will say, 'This shows how critical drug coverage is,' while the opponents will say, 'We can't afford to buy a pig in a poke that may kill the federal budget in 20 years.' "

The Express Scripts report comes at a time when drug makers are already being criticized for heavy spending on marketing efforts, including consumer advertising, that have contributed to escalating drug spending. But the pharmaceutical industry defends rising prices by pointing to the massive, high-risk research and development programs that can produce effective new medications. The industry is considering a big public-relations and advertising campaign to get its point across.

There is no question that developing new drugs is an economically risky endeavor, involving legions of scientists, expensive technology and often years of effort -- with no certainty of success. "We have an abundant pipeline of lifesaving drugs for cancer, cardiovascular disease, arthritis and other diseases," says Kristin Fayer, a spokeswoman for G.D. Searle, a unit of Monsanto Co., whose insomnia drug Ambien rose 14.8% in price over the two-year period. "It takes a lot of money to develop those drugs, and we manage to keep our prices extremely competitive."

Mary Sawyers, a spokeswoman for Bayer Pharmaceuticals, a unit of Bayer AG, says the company is working on a new generation of cancer drugs that cost hundreds of millions of dollars to develop. "We reinvest the revenue from price increases with the goal of producing more and better drugs" she says. The cost of Bayer's antibiotic Cipro rose by 16.7% over the same two-year period.

But the political reality is that the elderly -- a crucial voting bloc -- are the biggest users of prescription drugs, and many have to pay for their prescriptions out of their own pockets because Medicare currently doesn't cover outpatient medications.

The Express Scripts report says the increase in drug prices -- from January 1997 through December 1998 -- was the largest seen since it began tracking these figures in 1993. During that period, insurers and health-maintenance organizations spent 16.8% more on prescription drugs.

The causes of this surge are complex, reflecting price hikes by drug manufacturers, as well as the fact that patients are using newer and thus more expensive drugs, according to the analysis. The authors had predicted a smaller increase in spending by health plans, "but we didn't expect inflation to more than double," says Fred Teitelbaum, one of the report's authors and a vice president of outcomes research and cost management at Express Scripts.

Some of the price increases the study noted during the two-year period: allergy drug Vancenase AQ, up 19%; diabetes drug Glucophage, 11.9%; and several acne medications, more than 17%. Many drugs used by older patients also had big increases: The arthritis drug Daypro cost 11.4% more. The overall consumer inflation rate was 3% during those two years.

Overall, Express Scripts found average wholesale drug prices, or list prices, increased 5.1% in 1998, more than double the 2.4% increase in 1997. That matches the rate found by the University of Minnesota's Prime Institute, which also tracks prescription-drug prices, says Stephen Schondelmeyer, head of the institute.

Looking ahead, the authors of the Express Scripts report predict drug spending by insurers and HMOs will increase by 13% to 17% a year if those health plans don't aggressively control drug usage.

Express Scripts, based in Maryland Heights, Mo., manages drug benefits for a number of major health plans. In compiling its report analyzing outpatient-drug prescriptions, the company used a sample of 7.2 million people in 1997 and 8.8 million people in 1998. The analysis excludes Medicare patients because the limited drug coverage offered by most private health plans would have distorted the data, Dr. Teitelbaum says.

The pharmaceutical industry exercised restraint in raising prices immediately following President Clinton's attacks on high drug prices in the early 1990s. But the dynamics have changed. Major drug companies are feeling pressure from makers of generic medicines, which retail for less than name brands. Dr. Schondelmeyer also suspects some drug makers may be raising prices now in case the government overhauls the Medicare program -- and imposes price controls.

The Pharmaceutical Research and Manufacturers of America, an industry trade organization, also cites the fact that many patients are in "transition from older, less effective medicines to newer, more effective drugs. And the cost of research and development continues to go up. It now costs up to $500 million to research and develop one new drug."

A spokesman for the trade group says he hasn't had a chance to review the Express Scripts report's methodology. But he cites another analysis, by IMS Health, a pharmaceutical-market research firm, showing a lower drug-price inflation rate of 3.2% in 1998 and 2.5% in 1997.

"We have considerable respect for IMS Health because its acquisition-price database encompasses more than 20,000 pharmaceutical products and is updated continuously," the spokesman says.

World-Wide

Clinton Says Debt Can Be Erased
By 2015, Anticipates New Tax Cuts

WASHINGTON -- Predicting that recent economic good news will persist, President Clinton said the federal surplus has grown so much that the government can wipe out the federal debt by 2015.

At the same time, he said, the government can cut taxes, add prescription-drug coverage to Medicare and extend the life of the Social Security trust fund -- if only Republicans will play ball.

Republicans were cautious, but didn't slam the door on a possible compromise. Senate Finance Committee Chairman William Roth of Delaware, whose political instincts are to work across party lines, said the "new larger federal budget surplus estimates give us the opportunity to work together in a bipartisan way," and voiced support for the Medicare drug benefit. House Majority Leader Richard Armey of Texas talked of "a summer of cooperation."

But GOP leaders, particularly those in the House, are wary of Mr. Clinton. House Ways and Means Committee Chairman William Archer of Texas said he wants to see how Mr. Clinton proposes to "simultaneously ... give prescription drugs to every senior while keeping Medicare from going bankrupt and keeping premiums from growing out of control."

The White House is set to release its Medicare plan Tuesday, including a proposal to phase in the drug benefit over several years, according to people familiar with the details. As a result, monthly premiums for the drug benefit would rise from about $24 to $44. The government and the beneficiary would split drug costs of up to $2,000 or $3,000 at the beginning of the program and up to $5,000 in later years; there would be no deductible. Administration officials said it was possible some figures could still change.

Health maintenance organizations and employers who provide prescription-drug coverage to Medicare beneficiaries workers would be subsidized to keep them from dropping the coverage.

The proposal will set up a fund, in the range of $5 billion to $10 billion, to provide some relief to health-care providers that say the 1997 Balanced Budget Act cut too deeply. At the same time, the plan will extend some reimbursement cutbacks beyond 2002, when they were due to expire.

On the budget, the White House said that primarily because of a stronger-than-expected economy and tax revenue produced by stock-market profits, surpluses this year and next will be more than $20 billion above projections made in February, and $179 billion greater over the next five years.

It expects surpluses of $98.8 billion this year and $117.3 billion for the fiscal year beginning Oct. 1. In that year, for the first time since 1960, the federal government won't need Social Security payroll taxes to cover non-Social Security expenses, the White House said.

¹Data Seem to Show Drug Price Hikes

The new White House projections show that if the economy performs as the administration expects over the next 15 years -- a big if -- and if Congress accepts the Clinton proposal to devote much of the surplus to paying off federal debt, all of the $3.653 trillion debt outside the Social Security trust fund could be retired by 2015.

"We have now cut up Washington's credit card," the president said Monday. "Now we can pay off the debt... . This is a remarkable milestone, but it is clearly within reach if we do not squander the surplus by choosing short-term gain over long-term national goals."

The new surplus projections rest on a new economic forecast that suggests the U.S. economy can grow 0.3 percentage point faster each year for the next five years -- 2.5% a year compared with 2.2% -- because of similar-size growth in productivity, or output per hour of work.

That means an extra $20 billion or so a year in tax revenue for the next five years. Taxes on stock-market profits will bring an additional $10 billion a year to the Treasury. Spending projections haven't changed much since February.

Mr. Clinton proposes using a chunk of the bonus to pump more money into the Medicare insurance program for the elderly, $794 billion during the next 15 years. That is $100 billion more than he proposed in his February budget.

The president also altered one of the most contentious parts of his earlier Social Security proposal, using the additional surplus money to eliminate the complex budgetary transfers that Republicans derided as "double counting."

By White House reckoning, the original Clinton plan would have extended the life of the Social Security trust fund to 2055. The new one extends it to 2053. It explicitly would transfer general tax revenue to pay Social Security benefits after 2011; until now, payroll taxes and interest on that revenue have financed Social Security. The president didn't retreat from his plan to put some Social Security assets in the stock market, but neither did he emphasize it in the hoopla surrounding the midyear update of budget forecasts.

Mr. Clinton didn't alter his opposition to Republican tax-cut proposals, continuing to back his "universal savings accounts," which would use some of the surplus to encourage Americans to save more. But when asked if he is open to other tax cuts, he signaled flexibility. "I think we should achieve these objectives. Within the framework of achieving these objectives, obviously I'll be working with the Congress to achieve them," he said.

But Treasury Secretary Robert Rubin cautioned against tax cuts that have "the appearance of soundness," but actually begin small and explode in later years.

In a response to GOP maneuvering, Mr. Clinton said now he, too, favors a procedural device, known on Capitol Hill as a "lockbox," to shield Social Security taxes from politicians who would devote it to other uses. The administration hasn't released details yet. Unlike a Senate version, the White House wouldn't write a decreasing ceiling on federal debt into statute. And unlike a House version, the White House wants future tax cuts to be financed by tax increases or spending cuts.

A grand budget deal would certainly burnish Mr. Clinton's place in history. But a compromise that blurs party priorities also would make it more difficult for congressional Democrats to draw election-year distinctions with GOP competitors.

House Democrats have the least to gain in a compromise. But Mr. Clinton appears to be betting the surplus can be tapped to pay for a range of initiatives favored by both parties, while still leaving plenty to argue about for voters in 2000.

"If we can just get past the political barricades, we have the luxury of being able to do good politics and policy at the same time," said Democratic Sen. John Breaux. "It's not an either/or situation anymore," the Louisiana Democrat said. "You can do something on Social Security. You can do something on Medicare. And you can do something on tax cuts. You have flexibility you didn't have before."

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New Price Data on Prescriptions
Show Big Hikes for Many Drugs

Wall Street Journal
June 29, 1999