What Recession? Drug Companies Jack Up Prices

Despite a lousy economy, big drug companies are raising prices aggressively on their big brand-name products.

That's the word from Stephen Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota.

Schondelmeyer just did a study for AARP that shows prices for brand-name drugs often taken by Medicare patients rose more than 9 percent in the last year. Meanwhile, consumer prices fell 1.3 percent, the Bureau of Labor Statistics said last month.

"They're able to do it because the pharmaceutical market doesn't work like a normal economic market," Schondelmeyer says.

Patent protection allows drug companies to raise prices as much as they want, Schondelmeyer explains. Pharmacy benefit managers, the middle men who negotiate drug prices for employer health plans, aren't doing their job in keeping prices down, he adds.

"The market hasn't been effective in mitigating drug prices," Schondelmeyer says.

While pharmaceutical research produces breakthrough treatments, there are plenty of examples of so-so medicines that are being sold as wonder drugs for big prices, he notes.

Schindelmeyer points to Merck & Co.'s cholesterol drug Zetia as an example. A study released Sunday confirmed speculation that Zetia wasn't as effective a treatment as an older drug made by Abbott Laboratories. Yet, even as Zetia drops in sales, Merck has raised the price of the drug 14 percent this year, Schondelmeyer says.

One impetus for raising prices is looming health reform in Washington, D.C., Schondelmeyer says. Drug companies reached an agreement with the White House and Senate leaders to give $80 billion in drug rebates over 10 years as part of health reform. Schondelmeyer suspects the companies are trying to recoup some of that money. Drug industry executives deny price increases have anything to do with reform.