Prescription Drug Spending Grew 18.8% Last Year, to $131.9 Billion, Study Shows

Spending on prescription drugs "shot up" 18.8% last year, rising to $131.9 billion, with two dozen treatments accounting for half the increase, a new National Institute for Health Care Management Foundation study has found. According to the New York Times, "more expensive" drug prices, as well as increased use of "higher-cost" medicines, fueled the rise in prescription drug spending. The report attributed the $20.8 billion increase in spending "in large measure" to "the rising volume of prescriptions for the top-selling drugs," adding that "more aggressive" marketing by drug companies contributed to the growth. Nancy Chockley, president of the foundation, said, "The recent rise in pharmaceutical spending is due, in large measure, to the growth in sales of a relatively small number of medicines. Most of these drugs are the blockbusters many Americans have come to know by name and see advertised more and more." In the report, researchers attributed 42% of the spending increase to a rise in the number of prescriptions "written by doctors and filled by pharmacies," 36% to a "shift" toward the use of more expensive drugs and 22% to price increases. Prescription drug spending has risen 40% between 1998 and 2000, the study found. In 2000, the 50 top-selling medicines, which cost "almost twice as much" as other drugs -- $67.15 on average, compared to $36 -- accounted for 30% of prescriptions, the report revealed. Retail pharmacies filled 2.9 billion prescriptions last year, an increase of 7.5%, but the 50 best-selling drugs posted a "much sharper" increase, up 18.6% to 866.6 million, the report found. "Simply put, Americans are demanding, and physicians are prescribing, a higher volume of medicines," the study stated. The study, based on data from Scott-Levin Inc., did not include mail-order prescription drug sales, though it reported that such sales totaled $16 billion last year, up 26% from 1999 (Pear, New York Times, 5/8). To view the report, go to http://www. nihcm.org/spending2001.pdf. Note: You must have Adobe Acrobat Reader to view the report.

Advertising a Factor...
The Times reports that "aggressive" direct-to-consumer marketing of prescription drugs has "stimulated" a "major increase" in sales, prompting patients to ask their doctors for new drugs (New York Times, 5/8). "You cannot pick up a magazine or watch television without seeing a drug advertisement," Chockley said (Suriano, Orlando Sentinel, 5/8). She added, "We need to better understand what is driving the growth of these drugs and whether consumers are being well served by the shift to newer and more costly medicines" According to Steven Findlay, author of the report, new, more expensive drugs often offer only "slight improvement" at "much higher cost" (Fauber/Manning, Milwaukee Journal Sentinel, 5/7). Gail Wilensky, a Medicare expert and a member of the foundation's advisory board, added that "[m]ounting evidence" of a "large-scale substitution" of new treatments for "older, cheaper" drugs "shows that better information should be available to physicians about whether a newer therapy is actually better for a given patient" (Lueck, Wall Street Journal, 5/8).

... As Is Insurance
In addition to advertising, the Times reports that improved insurance coverage for prescription drugs has contributed to the rise in spending by "making consumers somewhat less sensitive" to drug prices (New York Times, 5/8). A "typical" insurance plan might require a $10 co-payment for generic drugs and a $20 co-payment for brand-name medicines, although the "actual price of the drug could be much higher" (Orlando Sentinel, 5/8). But such "generous" drug coverage is "changing rapidly," Findlay said. In recent years, employers have "scrambl[ed]" to reduce their share of drug costs, often shifting additional payments to employees or "encouraging" them to use "lower-cost" generic drugs (Appleby, USA Today, 5/8). "Pharmaceutical costs are becoming the fastest growing business cost. Clearly, this is hurting businesses," Rep. Tom Barrett (D-Wis.) said (Milwaukee Journal Sentinel, 5/7). In addition to "push[ing] up" costs for employers, the increased spending on prescription drugs has raised health insurance premiums for individuals and families and has "driven up" the cost of Medicaid, the Times reports (New York Times, 5/8).

Spread the 'Good News'
However, Pharmaceutical Research and Manufacturers of America President Alan Holmer said, "This report should be hailed as good news," pointing out that "more patients are getting more and better medicines." He added that "prescription medicines are the best value in health care today, allowing patients to stay out of the hospital, off the surgery table, on the job and in the home" (New York Times, 5/8). Steve Cigich, a health care consultant at Milliman & Robertson Inc., agreed, pointing out that rising prescription drug costs "actually have reduced the overall cost of health care" by "keeping people out of the hospital (Milwaukee Journal Sentinel, 5/8). In addition, pharmaceutical companies said that rising medication costs stem in part from the development of new drugs. "We are researching more medicines and better medicines for more diseases," PhRMA spokesperson Jeff Trewitt said, adding, "But the technology to do so is very expensive" (Orlando Sentinel, 5/8). PhRMA also "quarreled" with some parts of the report (Wall Street Journal, 5/8). According to USA Today, the group questioned whether the foundation's financial supporters had a "vested interest in cost-cutting." Findlay denied the charge. The foundation receives grants from the government and private sponsors and funds from 11 BlueCross BlueShield insurers (USA Today, 5/8).

'Costly' Rx Drug Benefit
Meanwhile, the rise in drug spending will likely increase "political pressure" for a prescription drug benefit under Medicare, though the report also "makes clear how costly such benefits could be" (New York Times, 5/8). According to Tricia Smith of the AARP, the study "underscores the need" for a Medicare drug benefit that addresses "cost-containment" (Wall Street Journal, 5/8). Barrett added, "This [trend] is going to continue. And it will put greater and greater pressure on Congress because neither businesses nor seniors can afford five years in a row of double-digit increases" on prescription drug costs. In addition, Barrett said that lawmakers should overhaul the "total system," restricting patents for drug companies, purchasing "cooperative" health insurance for seniors and urging pharmaceutical firms to lower costs and "make more medications available to more people" (Milwaukee Journal Sentinel, 5/7).