Wise Use Shows Results
U.S. Spending on Prescription Drugs Shows Slowest Growth in a Decade
America spent $188.5 billion on prescription drugs in 2004. That represents an 8.2 percent increase over the total prescription drug bill in 2003, the lowest growth in spending in more than a decade according to data recently released by the Centers for Medicare and Medicaid Services (CMS). Spending on prescription drugs as a percent of the total health care spending dropped to 11 percent and acted as a moderating force on overall growth in health care spending, which rose 7.9 percent in 2004, nearly the same as 2003.
What’s driving America to put the brakes on its increasing prescription drug bill? As AARP studies continue to document, it’s not the manufacturers of brand-name drugs, who continue to raise the prices they charge wholesalers and other distributors. (Read "Pharmaceutical Giants Hike Prices of Brand-Name Drugs" for more information.) AARP Director of Policy and Strategy John Rother explained that "the AARP study looks solely at prices, and specifically manufacturer prices, for a sample of drugs for a time in 2005. The CMS data represents total spending on all drugs in 2004. CMS found that total drug spending went up over 8 percent. This increase is a function of changes in price, usage and the types of drugs consumed. One factor contributing to the spending slowdown according to CMS is rapid expansion in the use of lower-price generic drugs. That is consistent with AARP research, which shows that, on average, manufacturers of generic drugs in our study have recently held prices steady."
Cynthia Smith, an economist at CMS, said that in addition to greater use of low-cost generics to replace costly brand-name drugs, the slowdown can be attributed to more over-the-counter antihistamines and treatments for peptic ulcers, greater reliance on mail-order prescription services, and "reduced consumption of certain drugs" because of concerns about safety.
Use of generics grew at double-digit rates for the third year in row. This growth is spurred by programs like AARP Watchdog and Wise Use campaigns that focus the public’s attention on the comparative cost and benefits of generics versus brand-name drugs.
Many co-payment plans sponsored by private insurers encourage consumers to choose lower-cost alternatives through tiered co-payment structures. Insurers are also containing costs by reducing benefits for brand-name drugs.
Out-of-pocket spending on drugs grew faster than spending by private health insurers in both 2003 and 2004.
However, overall health care spending continued to rise faster than wages and the overall economy. In addition, workers are paying much more in health care premiums than in previous years.
These findings appear in "National Health Spending in 2004: Slowdown Led by Prescription Drug Spending," published in Health Affairs, January/ February 2006.
