Generic drugs online

As overall health care costs continue to rise sharply in the United States, prescription drugs have emerged as a surprising exception - in large part thanks to generic drug companies in places like Israel and India.

Annual increases in drug costs are at the lowest rate in the three decades since the U.S. 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 Ginsburg, a supervisory economist at the Bureau of Labor Statistics, where he is involved in compiling the Consumer Price Index.

As recently as 2005, prescription drug inflation 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, the retailer began offering many generic prescriptions at $4 a month.

Target quickly announced 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 southeastern United States, announced last month that it would not charge for prescriptions for seven commonly used antibiotics.

To be sure, the U.S. 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. Also, costs are likely to soar in some specialized categories like cancer treatments and biotechnology drugs.

And yet for the average household, the drug index is perhaps a better reflection of the actual day-to-day 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, compared with $32.

But now, tamer drug inflation could add credibility to the platforms of presidential candidates who have embraced generics as part of a solution to rising health care costs, according to Dr. Robert Berenson, a senior fellow at the Brookings Institution. Three Democratic candidates - Hillary Rodham Clinton, John Edwards and Barack Obama - have included generics in their health care proposals.

Generics made up 63 percent of prescriptions dispensed in the United States in 2006, up 13 percent from 2005.

And these days, the country's biggest supplier of prescription drugs, as measured by prescriptions filled, is not a high-profile American company like Pfizer or Merck.

It is Teva Pharmaceutical, a generic manufacturer based in Israel, according to data from IMS Health, which tracks the market. Indian companies also make a growing number of generic drugs.

A Labor Department economist, Francisco Velez, said his office noted a drop in generic drug prices shortly after the large stores' promotions began, particularly in the U.S. South, where Wal-Mart started its program. His colleague, Ginsburg, called the drop in prices for generic drugs "dramatic." Wal-Mart and other large chain stores make up 15 percent to 20 percent of the pharmacies that the government surveys for the index.

The fourth quarter of 2006 was the first time in several decades that the index registered three consecutive months in which prices declined. Ginsburg said that the effect of the promotions by large retailers could be a one-time phenomenon, unless the companies decided to expand the number of drugs they discount.

Wal-Mart's list of discounted generics includes fewer than 350 drugs. On Tuesday, Wal-Mart announced that, beginning next year, 2,400 generics would be available to its employees at $4 a month. The company has also indicated that later this month it may make an announcement regarding its generic drug program for consumers.

The use of generics has been promoted by Medicare, the government health insurance program for senior citizens and disabled people, as well as by private employers and the pharmacy benefit managers that administer employee drug plans. Len Nichols, director of health policy for the New America Foundation, a Washington policy group, noted that many pharmacy benefit managers have encouraged the trend with tiered co-payments, allowing consumers to pay less if they choose the cheapest generic drugs and more for the most expensive name brands.

"My guess is that the increasing market share of generics, driven largely by firms using two- and three-tier pricing - that's what's slowing us down over time," Nichols said.

Although the Consumer Price Index is only one measure of prescription drug inflation, Medicare has also reported slower increases in spending on prescriptions, beginning in 2003 and continuing through 2005. The 2006 numbers are not yet available.

Despite the slowed inflation recorded by the index, overall spending for pharmaceuticals is still on the rise, up 8.3 percent in 2006, according to IMS. And that is unlikely to diminish anytime soon, as an aging population faces increasing health problems. According to Medicare, there have been large increases in the use of drugs for the cardiovascular and central nervous systems and for Type 2 diabetes.

High prices for new cancer drugs are also driving up spending, and pharmaceutical companies are collecting healthy profits. But John Rother, the policy director for AARP, an association of middle-aged and older Americans, said there were signs that even as brand-name manufacturers had posted higher prices for their top drugs, they had offered bigger rebates to major customers like pharmacy benefit managers. Because those rebates are negotiated individually and privately, they are difficult to measure.

"For specific drugs that are near the end of their patent life, the manufacturers are trying to think about how to hang on to sales," Rother said. "The only way they can do that is to offer deeper rebates so there isn't as much interest in generics."