Reports claiming that US prescription drug prices have been rising significantly, ahead of the government’s planned health reforms, are misleading and biased, Congress has been told.

One such report, by seniors group the AARP and the University of Minnesota’s PRIME Institute, says that prices of brand-name drugs increased 9.3% on average during the 12 months ending September 2009, the highest rise for seven years. Specialty drug prices rose 10.3% in the period, while for brand-name specialty drugs the average increase was 19.2%, according to Stephen Schondelmeyer, professor of pharmaceutical management and economics at the University.

On the other hand, prices of generic drugs fell 8.7% on average during the 12 months, but the “unusually high” levels of price growth among brand-name and specialty drugs means the annual average rate of increase for all drugs analysed by the AARP and PRIME researchers was 5.4%, Prof Schondelmeyer told a hearing held yesterday by the House Energy and Commerce Committee’s health subcommittee.

However, the panel also heard that the AARP report’s findings are "misleading and biased." The study is based on flawed methods and, “as it stands, does not meet peer-review standards for academic publication in reputable journals,” said Professor John Vernon of the University of North Carolina.

He pointed to a number of “major flaws” with the AARP analysis; for example, it is based on wholesale price data, looks at branded products only and ignores the fact that 10 of the top 25 branded pharmaceuticals in the study have generic versions currently on the market. Nor does it take account of the discounts available to consumers through mail-order pharmacies, discount retail pharmacies and insurer, said Prof Vernon, who is also a fellow at the National Bureau of Economic Research (NBER).

Richard Smith, senior vice president for policy and research at the Pharmaceutical Research and Manufacturers of America (PhRMA), added that government data show prescription medicine costs have grown more slowly in recent years than the costs of many other health care services but that “other” reports, which claim that branded drug prices are rapidly increasing, do not reflect the way the market functions and therefore exaggerate prescription drug price trends.

“Some reports attempt to isolate price trends just for brand drugs. This approach is inconsistent with how public policy and the market operate,” said Mr Smith and, he added: “these reports seem to have no parallel measure of the disproportionately large benefits achieved by the small share of health spending accounted for by medicines.”

However, according to Prof Schondelmeyer, to state that “all increased spending on prescription drugs is always good and will always save lives and reduce expenditures” is an over-generalisation and “simply not true.” He also noted that: “curiously, prescription drug prices appear to rise more rapidly in periods just prior to major policy changes.”

“Brand name and specialty drug prices accelerated before the Medicare Part D programme was enacted and implemented. Now that serious legislative action related to health market reform is being discussed, again we see a dramatic acceleration in brand name and specialty prescription drug prices,” he said.

But, according to Prof Vernon, the exact opposite is true. At the time of the Clinton Administration’s proposed Health Security Act (HAS) in 1992-1993, many large drugmakers publicly committed to keeping drug price increases at or below the overall inflation rate. While this makes sense because they would want to avoid political controversy over drug prices at a time when these are under great scrutiny, their publicly-announced commitments attracted the attention of the Federal Trade Commission (FTC), which consequently challenged whether such actions were a violation of antitrust law, he said.

There are numerous similarities between the healthcare reform legislation now being considered and that of the Clinton Administration’s HAS, said Prof Vernon, who told the legislators this begs the question: “why would the currently-proposed healthcare reform legislation result in a different behavior by firms?”