Specialty Drug Costs Soar

Since the Medicare drug benefit took effect in 2006, drug manufacturers have substantially raised the prices of the expensive specialty drugs most widely used by Medicare beneficiaries, according to an AARP Rx Watchdog Report released today.

Specialty drugs are prescription medications used to treat complex, chronic illnesses such as cancer and rheumatoid arthritis and are among the most expensive drugs on the market—at prices that range from $5,000 to more than $300,000 a year.

During the first two years of the Part D drug benefit (2006 and 2007), prices for the 144 specialty drugs most widely used by beneficiaries rose by 7.9 percent and 8.7 percent respectively, says the report by AARP’s Public Policy Institute. In the two years before the benefit, those prices rose 5 percent and 6.8 percent respectively.

On average in the four-year period from 2003 to 2007, drug makers’ prices for 112 popular Medicare specialty drugs increased by 42.9 percent, compared to the general inflation rate of 14.1 percent, the report says.

For a patient taking a specialty drug for a chronic condition such as multiple sclerosis, the average cost of therapy rose by almost $5,800 in the three-year period between 2004 and 2007.

“The skyrocketing cost of specialty drugs is especially tragic for those suffering from diseases like cancer and multiple sclerosis,” says John Rother, AARP executive vice president of policy and strategy. “These drugs can provide comfort and hope to these individuals and their families. But even the most miraculous drug is useless if people can’t afford to take it.”

The report concludes that rising specialty drug prices threaten consumers by increasing out-of-pocket spending for Medicare beneficiaries who pay a percentage of their drug costs rather than a fixed copayment. And the price hikes increase the risk of people falling into the Medicare “doughnut hole” coverage gap, where beneficiaries are responsible for paying all their drug costs. Moreover, the report points out that these higher specialty drug prices increase the burden on the taxpayers who subsidize Medicare spending.

“Specialty drug makers continue to raise the costs of drugs that have already been developed and tested,” says Rother. Those price hikes, he says, increase the burden on people with chronic conditions, as well as on employer-sponsored health plans.

For an in-depth look at specialty drugs, see “Million-Dollar Medicines” on p. 12 of the October 2008 print issue of the AARP Bulletin.