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Rx PRICES FOR SECOND TIER PRODUCTS RISING FASTER THAN TOP 100, UNIV. OF MINN. CALCULATES IN NEW INDEX FOR NACDS; 1992 INCREASES ARE 7.7% AT ANNUALIZED RATE

Executive Summary

Prescription price increases for second tier drugs are continuing to rise at a faster rate than the top 100 products, according to a new retail pharmacy price index, the NACDS PRIME Index, prepared by the University of Minnesota for the National Association of Chain Drug Stores. Through the first half of 1992, prices for the second 100 drugs increased 8.7% on an annualized basis, according to the University of Minnesota. The top 100 products had an annualized inflation rate of 7.5% during the same period. Similarly, in 1991, the prices for the second 100 products increased 10.9% compared to 9.5% for the top 100. The University of Minnesota notes that the higher price increase rates for lower volume products represent at least a five-year trend. Looking back at price data through 1987, the university says: "clearly, the lower volume drugs...have on average had higher inflation rates over the past five years." The new index is an analysis of AWP price changes for the mix of products sold through community pharmacies. It is conceived as a way of representing price trends for pharmacy, excluding the effects of deal prices by groups such as HMOs, the military and hospitals. NACDS describes the PRIME Index as a "'pure price change' index, in contrast to the [Consumer Price Index] and the [Producer Price Index], which are influenced by price, product mix and product quality upgrades." In the last two years, pharmacy prices have appeared to increase more rapidly than manufacturer prices, according to comparisons between the government's Producer Price Index and the Consumer Price Index. The PRIME Index maintains that the growth rate of the prices paid by community pharmacies actually has exceeded both the government indices. The index was developed by the University of Minnesota PRIME Institute, headed by Steven Schondelmeyer, PhD. It draws its AWP pricing information from MediSpan's Master Drug DataBase. "Even though the AWP does not represent the actual price paid by pharmacies for drug products, there is typically a constant relationship between these list prices and the actual acquisition cost for most pharmacies," an analysis accompanying the index notes. "Manufacturers nearly always raise their list prices and their actual transaction prices to traditional community pharmacies at the same rate." The index shows that in the first quarter of 1992, 60% of the top 200 products posted price increases averaging 5.8%. In the second quarter, those products changing in price averaged increases of 6.1%. The new index calculates 1992 figures based on a cohort of drugs chosen by sales volume to represent the top 200 drugs by 1991 dollar volume sold through community pharmacies. "In 1991, the top 200 drugs represented 72% ($23.8 bil. of $33 bil.) of prescription drug purchases that retail pharmacies made from manufacturers," the analysis maintains. NACDS says that the index will eventually be expanded to cover the top 500 drugs. "In the first quarter of each year, the top 200 drugs by retail pharmacy purchases from manufacturers will be identified (through IMS America) and the PRIME Index will be adjusted to account for the new sales mix data," the analysis notes. "The 1992 PRIME Index is based on the 1991 sales mix and the 1993 PRIME Index will be based on the 1992 sales mix." The PRIME index finds that manufacturers developed a pattern of more frequent price increases from 1985 to 1991. "In the 1970s and the early part of the 1980s drug products would typically increase in price once a year," an analysis notes. "From 1985 to 1990, the top 20 drug products averaged about 9.5 months between price changes," and during 1991 "the time interval between price changes has decreased further to average only about 8 months between changes." This year, there was a larger number of increases in the first quarter than in previous years. "The first quarter of 1992," a summary of the first survey reports, "saw an unusually high percent of the Top 200 drug products increase in price with 60% posting a change in this three-month period." The University of Minnesota interprets the high first-quarter figure as further signaling "an increase in frequency of price changes." The early changes in 1992, however, may reflect a slowing in the frequency and rate of price increases: as manufacturers prepared to hold to lower AWP increases this year, they may have instituted them earlier to get the full twelve-month benefit of the higher prices in 1992 operating results. "The annualized increases in the PRIME Index have ranged from 7.1% to as high as 12.3% over the past five years," the analysis notes. "The three lowest rates over the five-year period have been in the last three quarters." Speaking at an Aug. 31 session of the NACDS pharmacy conference in Chicago, association President Ronald Ziegler said that the new index "will serve as the benchmark for tracking prescription drug price changes at the manufacturer level." Ziegler characterized the development of the NACDS PRIME Index as part of the association's policy of "aggressively and effectively addressing issues relative to pharmacy operations and reimbursement."
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