DRUG PRICES AND SPENDING ON PRESCRIPTION DRUGS
Drug spending is way up
Spending in the United States for prescription drugs rose from $40.3 billion in 1990 to
$200.7 billion in 2005. Although prescription drug spending does not yet approach
spending on other health care services such as hospital and physician services (10% in
2005, compared to 31% and 21%, respectively), it has been one of the fastest growing
components, increasing over the past decade at double-digit rates compared to singledigit
rates for hospital and physician services.
This trend is not abating
According to an AARP survey, prices charged by drug makers for brand-name
pharmaceuticals jumped 3.9%, four times the general inflation rate, during the first three
months of 2006. This is the largest quarterly price increase in six years. Price increases
for some of the most popular brand-name drugs were much steeper; the sleeping pill
Ambien was up 13.3%, and the best-selling cholesterol drug, Lipitor, was up 4.7 to
6.5%, depending on dosage. Over all, higher prices mean that the cost of providing
brand-name drugs to the typical older American, who takes four prescription medicines
daily, rose by nearly $240 on average over the 12-month period that ended on March
31, according to AARP. 2006 marks the fourth consecutive year the average prices of
dozens of brand-name drugs widely used by elderly Americans have risen more than
twice the rate of inflation.
Specialty drugs are especially costly and utilization is increasing rapidly
The cost of cancer and specialty drugs is especially high. Celgene Corp. has
announced that it will sell the drug Revlimid, a treatment for multiple myeloma, a cancer
of the bone marrow, at $6,195 a month or $74,000 annually. This drug is priced well
beyond the cost of R&D, manufacturing, and marketing, according to Wall Street
analysts. Morgan Stanley estimates the manufacturer will make a 97% gross margin –
the profit excluding marketing and corporate costs – on Revlimid, an oral medication
that is relatively inexpensive to produce. Revlimid is by no means alone in being priced
“aggressively”; the Wall St. Journal has reported on many drugs priced well beyond
patients’ ability to pay. For example, the Elan Corp. and Biogen Idec Inc. have priced
the multiple sclerosis drug Tysabri at $2,184.62 a vial or about $28,000 a year, a 20%
premium over the price of the drug when it was first approved in 2004. Overall,
spending on high cost specialty drugs soared 17.5% in 2005 and is expected to more
than double by 2009 to $90 billion, according to a report released by the pharmacy
benefit manager Express Scripts. Spending on injectable drugs for inflammatory
diseases such as rheumatoid arthritis and Crohn's disease soared 35%, and spending
on cancer drugs known as anti-neoplastics, which were administered outside a doctor's
office, rose 19.2%.
Prescription drug costs contribute to Medicaid costs and drive benefit cuts
In 2005, Medicaid expenditures represented 19% - or more than $38 billion – of the
nation’s overall prescription drug spending. Double-digit annual increases in
prescription drug prices over the past decade and increased utilization have been major
contributors to significant increases in state Medicaid costs, pressuring states to reduce
benefits and cut costs through a variety of benefit changes. For example, in June 2006
the State of Vermont removed the acid reflux-fighting drug Nexium from the state's
preferred drug list for Medicaid patients in order to save money in a health program that
had prescription drug costs of $191.4 million in the 12 months ending June 30, 2005.
Those drug costs were up 24% from 2004 and were three times more than the cost for
Medicaid patients' inpatient hospitalizations.
Prescription drug costs are a roadblock to health care access
These costs are also a serious roadblock to health care access for the estimated 47
million Americans without any health insurance. Uninsured individuals are put in the
position of choosing between paying for medications or paying for other necessities
such as food and housing. Even many with insurance cannot afford medications
because of high co-pays or limited coverage. Studies have found that nearly onequarter
of Americans have had problems paying medical bills in the past year, and more
than six in ten of these have health insurance. Among adults reporting problems paying
medical bills, 56% report that the bills were for prescription drugs. Forty-three percent
of working-age adults with bill or debt problems did not fill a prescription because of
cost. These costs have also contributed to the increase in personal bankruptcies.
Medical bills have become a major driver of personal bankruptcy, accounting for half of
these filings, according to a Harvard University study published by the journal Health
Affairs, which estimates medical-caused bankruptcies affect about 2 million Americans
each year, counting debtors and their dependents, including 700,000 children.
(Updated April 2008)
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