NCPA - National Center for Policy Analysis


September 25, 2007

As overall health care costs continue to rise sharply, prescription drugs have emerged as a surprising exception, says the New York Times.


  • 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.
  • 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.

Another factor could be the so-called Wal-Mart effect, says the Times:

  • Last fall, Wal-Mart 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 Southeast, announced last month that it would not charge for prescriptions for seven commonly used antibiotics.

Due to the number of factors limiting inflation for prescriptions, Wal-Mart's initiative could be having a less direct effect, according to Sharon Treat, the executive director of the National Legislative Association on Prescription Drug Prices. Treat said that publicity about Wal-Mart's plan had raised awareness of generics.

"I think it may be having a spillover effect psychologically," Treat said. "Folks are seeing generics as more acceptable than they had."

Source: Stephanie Saul, "Helped by Generics, Inflation of Drug Costs Slows," New York Times, September 21, 2007.

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