Drug Spending Continues to Soar

Published Online: Thursday, April 1, 2004

Over the next 10 years, US retail prescription drug spending is expected to continue to exceed overall health care spending, according to the results of a study that were published in Health Affairs (January/February 2004). Analysts reached their conclusion after reviewing spending by government programs, private health insurance carriers, third-party payers, and out-ofpocket expenses.

Prescription drug spending, for example, accounted for 10.5% of health care spending in 2002 and will rise to 14.5% by 2012, according to an analysis of government estimates by the Centers for Medicare and Medicaid Services National Health Accounts. The researchers also learned that drug purchase rates increased and new drug approvals moved quickly between 1995 and 1999. Yet, spending on drugs seems to have slowed as a result of major drugs losing patent protection, more use of generic drugs, and companies choosing a multitiered system of copayments to encourage less expensive choices.

The study noted that current drug spending is about the same percentage? 10%?as in 1960. Other health care spending rose faster, compared with prescription drug spending, between 1960 and 1982 due to the introduction of Medicare and Medicaid. Spending on drugs even slowed between 1992 and 1994. Private insurers recently began to pass on more of the increased drug spending to consumers. Growth in third-party payment, however, has helped to lower consumers' out-of-pocket expenses.

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