The pharmacy benefit manager, whose recent acquisition of rival Medco Health Solutions greatly increased its available data, found that prices on a collection of the most widely used brand name prescription medicines rose 13.3 percent from Sept 2011 to Sept 2012. That easily outpaced the overall economic inflation rate of 2 percent.

Somewhat offsetting price hikes of branded drugs was a 21.9 percent drop in prices for generic drugs, helped by the recent entry to the market of generic versions of some of the most popular medicines, such as Pfizer Inc's cholesterol fighter Lipitor and the blood clot preventer Plavix, sold by Bristol-Myers Squibb Co and Sanofi. Those two drugs had been the world's top selling medicines prior to facing generic competition.

The generic utilization rate in the United States is now approaching 80 percent.

"The big takeaway from this for me is actually not so much that we have ongoing brand inflation, because we've always had that, though it's larger than usual," said Steve Miller, chief medical officer for Express Scripts. "What's really remarkable is the gap (between branded drug prices and generics) is getting larger because of the number of generics and the discounts on those generics are steep."

The 35.2 percentage point net inflationary difference is the largest gap between brand and generic prices since Express Scripts began calculating its Prescription Price Index in 2008.

"Especially during this time of financial crisis the opportunity is a great for patients to move to generics. Most of the drugs they want are available in generic and the prices are really competitive," Miller said.

There is great incentive for companies like Express Scripts to increase generic usage, not only to save client's money but because the profit margin is higher on cheap generics than with expensive branded drugs.

Pharmacy benefit managers, or PBMs, administer drug benefits for employers and health plans and run large mail order pharmacies.

Spending on traditional medications, such antidepressants, and those for blood pressure and cholesterol, fell 0.6 percent over the first three quarters of the year primarily due to increased use of generics, the report found.

However, spending on specialty drugs, such as treatments for cancer, rheumatoid arthritis and multiple sclerosis, jumped 22.6 percent compared with the first three quarters of 2011, spurred by price hikes and approvals of expensive new medicines.

Specialty drug costs ate up 20.8 percent of total pharmacy spending, Express Scripts found.

The biggest jump in the category came from utilization of new treatments for hepatitis C, with spending up 117.3 percent over 2011 levels.

Those numbers are likely to decline short term, however. Sales of new hepatitis C drugs from Vertex Pharmaceuticals Inc and Merck & Co that drove the increased spending have started to fall as patients await a next generation of medicines that promise fewer side effects and shorter treatment durations. Approvals of those drugs, likely over the next two years, from companies such as Gilead Sciences Inc and Abbott Laboratories, should re-ignite the inflation all over again with multibillion-dollar annual sales projected for the category.

Miller said the next big area for huge potential savings would come from generic versions of highly expensive biotech drugs, known as biosimilars. Some are already available in Europe but approval in the United States has been very slow.

"The savings opportunity is truly in the billions every year," he said.

The inaugural quarterly drug trends report quantified changes in utilization, unit costs and overall prescription drug spending, based on Express Scripts claims data for its commercially-insured members. That total is now nearly 100 million people, with more than half of those coming from former Medco members, the company said.

(Reporting by Bill Berkrot)

• A Permanent Economic Emergency