Drug prices jump again while other health costs decline

• Trend in contrast to drop in other health costs
• Brand-name drugs drive prices up
• Escalation offsets savings from generic medications

Prescription drug prices are taking off again as other health care costs are flat or falling.

After dropping during the recession, drug prices have reignited in the past four years, returning to growth rates of a decade ago. In 2012, prescription drug prices rose 3.6%, twice the 1.7% inflation rate, Bureau of Economic Analysis data show.

The trend is in sharp contrast to other health costs. Prices for a doctor's visit, lab test and nursing home room all fell below the rate of inflation for the past two years.

What's driving drug costs up: brand-name drugs paid for by insurance and often heavily advertised.

The price escalation on patented drugs has offset enormous savings that have occurred simultaneously from the growing use of inexpensive generic drugs. Generic drugs can be made by multiple companies, which compete on price. Four of every five prescriptions are for generics, which can cost one-fourth or less than the brand name version.

This blend — expensive brands and cheap generics after patents expire — lets consumers buy drugs at low cost while providing profits for drug research. The Food and Drug Administration has approved 70 new drugs in the past two years, including a breakthrough treatment of cystic fibrosis and the first drug for a common form of skin cancer.

The top-selling drugs reflect the strategy of the $310 billion annual drug industry:

No. 1 Nexium, a heartburn drug, had a 7.8% price hike to a $262 average prescription in the first nine months of 2012, IMS Health reports.

No. 2 Abilify, for bipolar disorder, increased 10.4% to $642 per prescription.

No. 3 Crestor, a cholesterol-lowering drug, went up 9.7% to $193 per prescription.

"Pricing decisions are based on many factors that reflect our obligations to patients and shareholders," says Stephanie Andrzejewski of AstraZeneca, which makes Nexium.

"This price system is a blessing as well as a frustration," says N. Lee Rucker, a pharmaceutical expert at AARP, which represents seniors. High prices create a robust market for innovative drugs, she says, but the patents can be too long and physicians may be poorly informed about a drug's cost and effectiveness.

Most consumers are protected from rising drug prices. The Medicare drug benefit, started in 2006, means the government pays most costs that once fell on seniors.