This is the accessible text file for GAO report number GAO-05-104R 
entitled 'Prescription Drugs: Trends in Usual and Customary Prices for 
Drugs Frequently Used by Medicare and Non-Medicare Enrollees' which was 
released on October 07, 2004.

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October 6, 2004:

The Honorable Olympia J. Snowe:
Chair:
Committee on Small Business and Entrepreneurship:
United States Senate:

The Honorable Ron Wyden:
Ranking Minority Member:
Subcommittee on Consumer Affairs and Product Safety:
Committee on Commerce, Science, and Transportation:
United States Senate:

Subject: Prescription Drugs: Trends in Usual and Customary Prices for 
Drugs Frequently Used by Medicare and Non-Medicare Enrollees:

This report responds to your request for information on trends in 
prices for prescription drugs frequently used by Medicare beneficiaries 
and other individuals with health insurance. We obtained data from two 
state pharmaceutical assistance programs for the elderly--
Pennsylvania's Pharmaceutical Assistance Contract for the Elderly 
(PACE) and New York's Elderly Pharmaceutical Insurance Coverage (EPIC)-
-on the usual and customary prices reported by retail pharmacies for 
selected drugs.[Footnote 1] The usual and customary price is the 
undiscounted price individuals without drug coverage would pay. We 
tracked monthly price trends from January 2000 through June 2004 for a 
total of 99 drugs, which include 77 drugs frequently used by Medicare 
enrollees in Blue Cross and Blue Shield Association's (BCBS) Federal 
Employee Program (FEP) and 79 drugs frequently used by non-Medicare 
enrollees in BCBS FEP. We also compared the price trends during this 
period separately for the 52 brand drugs and 47 generic drugs. Our 
analyses are limited to the usual and customary prices reported by 
retail pharmacies in Pennsylvania to the PACE program and by retail 
pharmacies in New York to the EPIC program for the 99 drugs. We 
performed our work from April 2004 through October 2004 in accordance 
with generally accepted government auditing standards. (See enc. I for 
a description of our scope and methodology.)

Overall, we found that the average usual and customary prices for 77 
prescription drugs frequently used by Medicare enrollees increased 21.8 
percent from January 2000 through June 2004, a 4.6 percent average 
annual rate of increase. During the same period, the average usual and 
customary prices for 79 drugs frequently used by non-Medicare enrollees 
increased at a similar rate--22.8 percent, a 4.8 percent average annual 
rate of increase. (See enc. II for the annual percentage change in 
average usual and customary prices for drugs frequently used by 
Medicare enrollees, and enc. III for the monthly trend in these prices 
for drugs frequently used by Medicare enrollees and those frequently 
used by non-Medicare enrollees.) We also found that average usual and 
customary prices for 52 frequently used brand drugs increased about 
three times faster than for 47 frequently used generic drugs. 
Specifically, from January 2000 through June 2004, the average usual 
and customary prices for the brand drugs increased 26.4 percent, a 5.5 
percent average annual rate of increase, whereas prices for generic 
drugs increased 8.3 percent, a 1.8 percent average annual rate of 
increase. (See enc. IV for the annual change in average usual and 
customary prices for brand and generic drugs.)

As agreed with your offices, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 7 days 
after its date. At that time, we will send copies of this report to 
relevant congressional committees and other interested members. The 
report is also available at no charge on GAO's Web site at http://
www.gao.gov. If you or your staff have any questions regarding this 
report, please call me at (202) 512-7119 or John E. Dicken at (202) 
512-7043. Rashmi Agarwal, Andrea Kastin, Matthew L. Puglisi, and Daniel 
Ries were major contributors to this report.

Signed by: 

Laura A. Dummit:
Director, Health Care--Medicare Payment Issues:

Enclosures - 4:

Scope and Methodology:

We used data from BCBS to determine the 100 prescription drugs most 
frequently dispensed through retail pharmacies in 2003 for Medicare 
enrollees and the 100 most frequently dispensed for non-Medicare 
enrollees in the BCBS FEP.[Footnote 2] Combined, these represented 133 
different drugs.[Footnote 3]

We obtained average monthly usual and customary prices reported by 
retail pharmacies to Pennsylvania's PACE from January 2000 through June 
2004 and New York's EPIC from August 2000 through June 2004.[Footnote 
4],[Footnote 5] We collected prices based on a common number of units 
(such as pills), typically for a 30-day supply. Based on combined PACE 
and EPIC data, 99 of the 133 drugs we selected had prices reported 
during the entire period from January 2000 through June 2004. We 
analyzed price trends from January 2000 through June 2004 for these 99 
drugs.

Of the 99 drugs, 77 were among those most frequently used by BCBS FEP 
Medicare enrollees, and 79 were among those most frequently used by 
BCBS FEP non-Medicare enrollees. We first determined the total number 
of prescriptions in 2003 for these drugs provided to Medicare enrollees 
and provided to non-Medicare enrollees in BCBS FEP. Separately for 
drugs frequently used by Medicare and by non-Medicare enrollees, we 
calculated the share of the total number of prescriptions attributed to 
each drug. The price of each drug was then weighted by its relative 
share of total Medicare or total non-Medicare prescriptions in 2003 to 
calculate the average price for Medicare drugs and for non-Medicare 
drugs. We standardized these averages to create a Medicare and a non-
Medicare price index, with a value of 100 as of January 2003.

We also analyzed trends in usual and customary prices for brand and 
generic drugs separately. Of the 99 drugs, 52 were brand drugs and 47 
were generic drugs. Similar to our calculation of Medicare and non-
Medicare price indexes, we calculated indexes for brand drugs and 
generic drugs based on each drug's share of the total number of brand 
or generic prescriptions dispensed to BCBS FEP enrollees in 2003.

Our analyses are limited to the usual and customary prices reported by 
retail pharmacies in Pennsylvania to the PACE program and by retail 
pharmacies in New York to the EPIC program for the 99 drugs. We 
reviewed the reliability of data from PACE, EPIC, and BCBS, including 
ensuring that the price trends and frequently used drugs were 
consistent with other data sources, and determined that the data were 
sufficiently reliable for our purposes. We performed our work from 
April 2004 through October 2004 in accordance with generally accepted 
government auditing standards.

Annual Percentage Change in Average Usual and Customary Prices for 
Drugs Frequently Used by Medicare Enrollees, January 2000 through June 
2004:

[See PDF for image]

Notes: Prices from PACE and EPIC are for 77 prescription drugs 
frequently used by Medicare enrollees in BCBS FEP in 2003. Drugs with 
the same name but different dosages and forms (such as tablets or 
capsules) were counted as unique drugs.

[A] The change in average usual and customary prices from January 2004 
through June 2004 is extrapolated as an annual percentage change.

[End of figure] 

Index of Average Usual and Customary Prices for Drugs Frequently Used 
by Medicare and Non-Medicare Enrollees in BCBS FEP, by Month, January 
2000 through June 2004:

[See PDF for image]

Note: Index includes prices from PACE and EPIC for 77 prescription 
drugs frequently used by Medicare enrollees and 79 prescription drugs 
frequently used by non-Medicare enrollees in BCBS FEP in 2003. Drugs 
with the same name but different dosages and forms (such as tablets or 
capsules) were counted as unique drugs.

[End of figure] 

Annual Change in Average Usual and Customary Prices for Brand and 
Generic Drugs Frequently Used by Enrollees in BCBS FEP, January 2000 
through June 2004:

[See PDF for image]

Notes: Prices from PACE and EPIC are for 52 brand prescription drugs 
and 47 generic prescription drugs frequently used by BCBS FEP enrollees 
in 2003. Drugs with the same name but different dosages and forms (such 
as tablets or capsules) were counted as unique drugs.

[A] The change in average usual and customary prices from January 2004 
through June 2004 is extrapolated as an annual percentage change.

[End of figure] 

(290426):

FOOTNOTES

[1] We used data from PACE and EPIC because they were two of the 
largest state pharmaceutical assistance programs, collected data from 
pharmacies on usual and customary prices for drugs, and had historical 
price data available since 2000.

[2] BCBS FEP covered nearly 55 million prescriptions dispensed to 
enrolled federal employees, retirees, and their dependents at retail 
pharmacies in 2003, including 21 million prescriptions for FEP 
enrollees who were also Medicare beneficiaries. The 99 drugs that we 
included in our analyses represented about 33 percent of total 
prescriptions dispensed to BCBS FEP enrollees in 2003.

[3] Drugs with the same name but different dosages and forms (such as 
tablets or capsules) were counted as unique drugs. 

[4] PACE covered more than 9 million prescriptions and EPIC covered 
nearly 10 million prescriptions dispensed to mostly low-income seniors 
in 2003. 

[5] We merged price data from PACE and EPIC for August 2000 through 
June 2004, but report price data from PACE alone for January 2000 
through July 2000. Because the average of the usual and customary 
prices reported by PACE and by EPIC were nearly identical, we do not 
believe that including the EPIC data in August 2000 notably affected 
the price trend.