Anticipation of health bill raises costs

Pick a health problem: asthma, high cholesterol, diabetes.

Ask a consumer what it's costing to treat such conditions, and you'll hear that, after years of rising drug prices, the rate of increase in the last year has been particularly sharp.

It's an example of how — even before a health care bill has passed and well before proposed provisions would take effect — consumers could feel it in the pocketbook as the health care industry anticipates change.

“When we have major legislation anticipated, we see a run-up in prices,” said Stephen Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota who has analyzed drug pricing for AARP, the advocacy group for senior citizens.

Drug makers say they have valid business reasons for the price increases. Critics say the industry is trying to establish a higher price base before Congress passes legislation to curb drug spending.

Drug makers aren't alone. The insurance industry says consumers also could see increases in premiums as early as next year because of certain provisions in the legislation making its way through Congress.

“These reforms would force the reopening of existing contracts and increase the cost of coverage for American families by promising new benefits that cannot be supported by current premium levels,” an insurance trade group told House members before they voted Nov. 7.

The House passed one version of a health care bill, and the Senate voted Saturday to proceed to debate on the Senate Democrats' bill. In both cases, many of the major provisions wouldn't take effect before 2013.

But some parts would take affect sooner.

Among eight early provisions in the House bill cited by the America's Health Insurance Plans trade group is one that would, beginning next year, allow individuals through age 26 to remain on their parents' health insurance.

(Nebraska has its own law taking effect in January that raises the maximum age to 30 for keeping dependent children covered on health insurance policies.)

The cost of the expanded dependent coverage and other early provisions under the congressional bill would come well before the revenue generated by the requirement that nearly everyone purchase insurance, said Robert Zirkelbach, a spokesman for the trade group.

That individual mandate would not take effect until 2013 under the House bill.

Zirkelbach's trade group supports extending the age for dependent coverage but maintains that that and other provisions should be paired with the requirement that everyone have insurance. Otherwise, he said, insurance companies will be forced to raise premiums to pay for the provisions that take effect sooner.

Consumers already are dealing with higher drug prices.

The increases are a burden on consumers whose wages have not kept up, said Ron Pollack, executive director of Families USA, a national consumer group.

In the last year, the industry has raised the wholesale prices of brand-name prescription drugs by about 9 percent, analysts say. That will add more than $10 billion to the nation's drug bill, which is on track to exceed $300 billion this year.

By at least one analysis, it is the highest annual rate of inflation for drug prices since 1992.

The drug trend is at odds with the direction of the Consumer Price Index, which has fallen by 1.3 percent in the last year.

Lindi Janulewicz of Omaha said she's paying more for prescriptions this year even though she has health insurance with drug coverage.

The 27-year-old marketing director has diabetes. Her out-of-pocket cost for insulin and other drugs for her condition will be nearly $1,400 this year, up from $900 the year before. Her costs have grown both because she required additional medication and because of rising prices.

Janulewicz said she has no choice.

“If I didn't get my insulin, I would die,” she said.

The prescription price increases mean that she and her husband have less to set aside for savings or home improvements.

Keith Mueller, a health policy expert at the University of Nebraska Medical Center, said it's clear that drug makers are worried about the cost controls in congressional proposals.

“They have every incentive to increase (prices) while they can,'' he said.

A provision in the House bill would require the U.S. secretary of health and human services to negotiate directly with drug makers to lower prices for Medicare Part D plans. Mueller said those negotiations would put pressure on drug makers to reduce prices.

Though prescription drug spending is only about 10 percent of national health care spending, it's one of the fastest-growing segments, Mueller said.

Brand-name drugs have patents that protect them from competition, giving manufacturers wide freedoms to raise prices, said Dr. Richard O'Brien of the Center for Health Policy and Ethics at Creighton University.

Drug companies say they are having to raise prices to maintain the profits necessary to invest in research and development of new drugs as the patents on many of their most popular drugs are set to expire over the next few years.

“Price adjustments for our products have no connection to health care reform,” said Ron Rogers, a spokesman for Merck. The company raised its prices 8.9 percent in the last year, according to a stock analyst's report.

This year's increases mean the average annual cost for a brand-name prescription drug that is taken daily would be more than $2,000 — $200 higher than last year, Schondelmeyer said.

The drug industry has actively opposed some of the cost-cutting provisions in the House legislation, which aims to trim drug spending by about $14 billion a year over a decade.

In contrast, the drug makers have proudly cited the agreement they reached with the White House and the Senate Finance Committee chairman to trim $8 billion a year — $80 billion over 10 years — from the nation's drug bill by giving rebates to older Americans and the government. That provision is part of the Senate Democrats' bill unveiled last week.

This year's price increases effectively would cancel out the savings from at least the first year of the Senate Finance agreement. And some critics say the surge in drug prices could change the dynamics of the entire 10-year deal.

Ken Johnson, senior vice president of the Pharmaceutical Research and Manufacturers of America, criticized the analysis Schondelmeyer conducted for AARP, saying it was politically motivated. The AARP has endorsed the House health care bill.

“In AARP's skewed view of the world, medicines are always looked at as a cost and never seen as a savings — even though medicines often reduce unnecessary hospitalization, help avoid costly medical procedures and increase productivity through better prevention and management of chronic diseases,” he said.

But Schondelmeyer's analysis — which found prices for the name-brand drugs most widely used by the Medicare population rising by 9.3 percent in the last year — is in line with the findings of Wall Street analyst Catherine Arnold.

Arnold said the prospect of cost-containment under the health care legislation as well as a tougher business environment entered into the decisions of manufacturers to raise prices this year.

“If you're going to take price increases,” Arnold said, “here and now might be the place to do that, because the next year and the year after that might be tough.”

The New York Times contributed to this report.

Contact the writer:

444-1122, michael.oconnor@owh.com

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