CMS: Generics Keep Costs Down

FEBRUARY 01, 2006

Officials at the Centers for Medicare & Medicaid Services (CMS) are crediting generic drugs with playing a key role in slowing down the overall rate of health care inflation in the United States. In a new report released by CMS's Office of the Actuary, government researchers concluded that growth in health care spending in the United States slowed for the second straight year, while spending for prescription drugs is now growing at only half the rate of 5 years ago.

Citing data through 2004, the most recent year for which actual numbers are available, the report noted that spending for prescription drugs increased 8.2% in that year, down from a 10.2% inflation rate in 2003 and 14.3% in the 2000-2002 period. "Factors contributing to this slowing trend [included] rapid growth in use of lower-priced generic drugs through tiered benefit plans," CMS officials stressed.

The new CMS figures also reveal a shift in growth between hospital and prescription drug spending. "In 2004, prescription drugs accounted for only 11% of the growth in national health care expenditures, smaller than its share of the increase in recent years,"the report said. "In addition, the rate of growth in prescription drug spending—at 8.2% in 2004—is slower in absolute terms than in previous years."

Prescription drug spending had accounted for 23% of the growth in personal health spending between 1997 and 2000, but by 2002-2004 it accounted for only 14%, the report said.

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