The report showed worrying drops in achievement at other stages, in addition to poor standards at 5-14 highlighted last week, Mr Russell said.
This pointed to a need to reform the Higher Still examination system and to streamline school assessments to "reduce the paper-chase in the land of origami".
Mr Russell said: "It's bad enough that people can hardly understand the system of assessments we now have, but it is even more worrying that the number of pupils failing their Highers is increasing.
"The report shows more pupils failing at Higher and Standard grades with a sharp rise in the number of compensatory awards at Higher level, from around 11 per cent in 2000, to 15 per cent in 2002."
A quarter of pupils who gained a Standard grade award at Credit level failed to gain a Higher award at A-C in 2002 and the number of no awards at Intermediate 1 had risen from around 300 in 2000 (36 per cent) to 2,100 (48 per cent) in 2002.
"I am deeply concerned with these trends," Mr Russell said.
The report had described the range of pupils' achievement as "unduly wide" and said a significant number were making slower progress than would be expected.
"This is simply not good enough," Mr Russell said. He added: "School pupils are not getting thicker, so this must mean that the system is failing accurately to assess educational achievement."