updated 3/4/2008 7:19:01 PM ET 2008-03-05T00:19:01

Drug makers increased their prices last year by an average of 7.4 percent for brand-name medicines most commonly prescribed to the elderly, according to the advocacy group AARP.

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The increase was about 2.5 times overall inflation, continuing a long-standing trend.

The advocacy group has tracked drug prices going back to 2002. Specifically, it looks at the prices charged to wholesalers. It noted that the price increases have been slightly greater since the Medicare drug benefit kicked in Jan. 1, 2006.

In the four years before the benefit's startup, wholesale prices rose between 5.3 percent and 6.6 percent a year, according to AARP's tracking.

AARP officials said the outcry over drug prices was quite strong when Congress approved legislation establishing the drug benefit. Since the drug benefit began, that outcry has diminished, thanks to the federal government picking up much of the tab for beneficiaries' medicine.

"Unfortunately, many manufactures have taken the absence of an outcry as a green light to go ahead and raise prices even more," said John Rother, AARP's policy director.

Ambien had biggest price increase
All but four of the 220 brand-name prescriptions in the study had price increases during 2007. Nearly all exceeded the rate of general inflation. Among the top 25 drug products, the sleep aid Ambien had the largest price increase, 27.7 percent. Ambien is manufactured by Sanofi-Aventis. On the other end of the spectrum, Merck's cholesterol drug Zocor had no price change in 2007. Also, Bristol-Myers Squibb's blood thinner Plavix had a price increase of 0.5 percent.

The manufacturer's wholesale price is the most substantial component of a prescription drug's retail price. However, insurance companies, such as those that cover Medicare beneficiaries, typically negotiate confidential rebates from the manufacturer, and the plan's customers benefit. Plans could potentially negate a higher wholesale price by negotiating a steeper discount or by lowering their reimbursement rates to pharmacies.

Still, a change in the wholesale price generally leads to a similar percentage change in the price of most prescriptions, AARP said.

The trade group representing drug makers, the Pharmaceutical Research and Manufacturers of America, said AARP's numbers don't reflect the true amounts that consumers pay for medicine. Nor do the numbers reflect a slowing in the growth of drug prices when taking into account generics.

Since 2000, prescription drug prices, as measured by the federal government, have increased more slowly than overall medical inflation, said Ken Johnson, senior vice president for the trade group.

The government's price index for medicines includes a blend of brand-names and generic drugs that represents what "consumers actually buy — rather than the few selectively highlighted by AARP," Johnson said.

AARP planned to officially release its report on Wednesday. While the report focused on higher prices for brand names, federal health officials note that more people are taking generic medicines. They say that trend has accelerated as a result of the Medicare drug benefit. Insurance plans use tools, such as lower co-payments for generics, to steer consumers to lower-priced medicines. Government economists say about two-thirds of all prescriptions now are generics.

"That's been the good-news story," Rother said. "The plans have done what we hoped they would do, which is shift people to lower-cost generic drugs," Rother said. "However, savings from people shifting to generics are being offset by these higher prices for brand names."

Johnson said prescription medicines account for about 10 percent of total national health care spending _ a percentage that has not changed despite roughly 14 million seniors and disabled people gaining prescription drug insurance since the drug benefit began.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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