Researchers examined 217 brand-name drugs, including popular drugs like Nexium, which is used to treat acid reflux.
They found that even though consumer prices overall declined by 0.4 percent last year, the cost of brand-name drugs went up. The price of those same medications rose 7 percent in 2008.
The AARP report said the retail price of brand-name drugs rose 41.5 percent from 2004 to 2009, far outpacing the increase in the consumer price index which increased by 13.3 percent during that same period.
That means someone who takes three brand-name drugs pays an average of $1,900 dollars more each year for medicine.
"Something is out of whack here about no increases in the rest of the economy and very substantial [increases] with pharmaceuticals," AARP's John Rother said.
The pharmaceutical industry group, Pharma, declined ABC News' request for an on-camera interview and did not answer questions we submitted in writing. However, in a written statement, Pharma called the AARP report "distorted and misleading" for not including cheaper generic equivalents which account for 75 percent of prescriptions filled.
Reserchers from the AARP said that for most of the 217 medications they looked at, there was no generic version because the brand-name drug is still under patent.
Higher prescription drug prices are especially hard on elderly Americans living on fixed incomes, many of whom are on the Medicare prescription drug plan, which leaves them uncovered after they spend $2,830 on medications in one year. The coverage kicks back in only after they have spent $4,550.
"They bear the full cost out of pocket when they reach that coverage limit, and that's why this is particularly sensitive to older persons," Rother said.
The report did contain some good news. More and more Americans are turning to generic equivalents.
Yet, many Americans still choose the more expensive brand name medicines even when the exact same drug is available as a generic.
Dr. Keshav Chander, a cardiologist in St. George, Utah said many of his patients mistakenly assume the generic drug cannot be as good as the brand name because it is so much less expensive.
"When we buy drugs, we cannot believe that something that is 10 times more expensive than the other product is not going to be better," said Dr. Keshav Chander, a cardiologist.