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Drug cost inflation slowed by generics

As overall healthcare costs continue to rise sharply, prescription drugs have emerged as a surprising exception.

Annual inflation in drug costs is at the lowest rate in the three decades since the Labor Department began using its current method of tracking prescription prices. The rate over the last 12 months is 1 percent, according to the government's latest data, released Wednesday.

"The way the index is going, it looks like drug price increases are not going to be very painful this year," said Daniel H. Ginsburg, a supervisory economist at the Bureau of Labor Statistics, where he is involved in compiling the consumer price index.

As recently as 2005, inflation in drug prices was running at an annual rate of 4.4 percent.

Economists say the slowdown has come about because more people are turning to generics and because generic versions of some of the most common drugs have recently come on the market.

In the past year and a half alone, generic equivalents have become available for the cholesterol treatment Zocor, the sleeping pill Ambien, and the blood pressure drug Norvasc.

Another factor could be the so-called Wal-Mart effect. Last fall, Wal-Mart began offering many generic prescriptions at $4 a month. Target quickly unveiled a similar plan, and Kmart expanded its program, which offers a 90-day supply of generic drugs for $15. Other retailers have followed with their variations. Publix, a grocery store chain with 684 pharmacies in five states in the Southeast, said last month it would not charge for prescriptions for seven commonly used antibiotics.

To be sure, the government still expects spending on medications to rise, to nearly $500 billion a year within a decade, up from an estimated $275 billion this year. That will happen as more people take more drugs and as new drugs are introduced.

And yet for the average household, the drug index is perhaps a better reflection of the actual impact of prices for their most commonly used drugs, like antibiotics, blood pressure pills, and cholesterol medicines. According to the nonprofit Kaiser Family Foundation, in 2006 the average brand-name prescription cost more than three times the average generic: $111 versus $32.

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