"Brand-name drug prices have increased dramatically faster than inflation for decades," said Leigh Purvis, prescription drug policy principal at the AARP Public Policy Institute, and author of the report. "The median price of a new brand-name prescription drug is now approximately $200,000 per year, so even relatively small percentage price increases can translate into thousands of dollars and put life-saving medications out of reach of the patients who need them."

Big price hikes for highly used drugs

The study compared price increases for a wide range of drugs over time, based on the amount of time the drug has been on-market and the urban consumer price index (CPI-U), a common measurement of inflation covering all population centers of more than 10,000 people. The CPI-U accounts for 93% of the US population.

The study noted that in 2021, Medicare spent nearly $81 billion on the top 25 brand-name prescription drugs in the U.S. In all, Medicare covered 3,500 prescription drugs in 2021 for a total cost of $216 billion, meaning that the top 25 medications accounted for over 37% of Medicare's prescription drug spending that year. For all but one drug in the top 25, lifetime price increases greatly exceeded the rate of inflation, the study noted.

"The largest lifetime percentage increase among these drugs was for Lantus, an insulin product used to treat diabetes that was introduced in 2000. Its price has increased by 739% since then," the report said. "The second highest increase was for Enbrel, which was introduced in 1998. The list price for this rheumatoid arthritis drug increased by 701%. Of the 25 drugs listed, eight are used to treat diabetes and five are cancer medications."

Purvis noted that rising drug prices affect all Americans, not just those on public programs. "The price increases were calculated using list prices (i.e., the wholesale acquisition cost, or WAC), which drug companies establish and are effectively the starting point for everyone, not just Medicare," she said.

A new policy designed to moderate price inflation

The AARP study singled out a recent policy change by the Biden Administration, which will allow the Centers for Medicare & Medicaid (CMS) to negotiate drug prices for the top ten drugs used by Medicare enrollees. CMS will announce which 10 drugs will fall under the program on Sept. 1, and more drugs will be added to the list in coming years. The new policy is part of the Inflation Reduction Act (IRA), passed by Congress in 2022.

Tre report said that the data on rising drug costs underscores the need for this type of legislative action to moderate drug price increases. "These findings highlight the importance of the IRA and its inflation-based rebates that will require drug companies to pay Medicare when they increase their prices faster than inflation. The existence of such penalties should discourage drug companies from engaging in this type of lifetime pricing behavior in the future," the AARP report said.

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The overall impact of the IRA drug price controls will have a broad impact on health care costs, AARP officials said, and will affect employer-based insurance as well as the Medicare program. "Many experts said that we should expect some sort of spillover effect from the inflation-based rebates because the price metrics used to determine whether a price has increased faster than inflation include prices in the commercial market," Purvis said. "CBO estimated that commercial drug prices, and therefore health insurance premiums, will be lower than they would have been absent the inflation rebate policy. We're also expecting to see some spillover effects from Medicare negotiation, as the prices that are negotiated are likely to become a new ceiling for other insurers as well."