Report to the President: Prescription Drug Coverage, Spending, Utilization, and Prices.. 3.1 National Trends in Drug Spending

04/01/2000

While prescription drugs represent only about seven percent of total national health expenditures, in absolute dollars the market is formidable (Copeland, 1999). In 1998, the prescription drug market represented over $91 billion for approximately 2.5 billion prescriptions at the retail level. The average prescription cost increased 11.9 percent over the prior year (Glaser, 1999). Projections of U.S. retail spending on prescription drugs forecast expenditure levels of $103 billion in 1999 and $143 billion by 2002 (Sager, 1999). Increases in total drug spending are concentrated in a relatively small number of therapeutic categories. Four drug categories account for 30.8 percent of the total $42.7 billion increase in drug spending between 1993 and 1998: antihistamines, antidepressants, cholesterol lowering agents, and anti-ulcerant drugs. (Barents, 1999).

Growth in drug spending is generally associated with two primary factors: (1) higher drug prices; and (2) increased demand for drugs (Smith, 1999). High drug prices account for about 64 percent of the total 1993-98 increase in drug spending (Barents, 1999). This is largely due to the recent flood of new and more costly drugs into the market following revisions in the Food and Drug Administration (FDA) procedures to accelerate the drug approval process. In 1998, the average price per prescription for a new drug was $71.49, which is twice the average ($30.47) for previously available drugs. Forecasters expect a slowdown in these introductions as the industry’s drug development pipeline stabilizes to the new regulatory timelines (Smith 1999).

Increases in the number of drugs that patients use are largely attributed to the drop in out-of-pocket costs, resulting from greater prescription coverage through managed care plans and, until recently, a deceleration in drug price inflation (Smith 1999). Another influence is the change in FDA policy in 1997 (and finalized in 1999) to allow pharmaceutical manufacturers a freer hand in advertising directly to consumers through mass media. In 1998, pharmaceutical manufacturers spent $8.3 billion promoting their products, of which $1.3 billion was in direct-to-consumer advertising (Barents, 1999).

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