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Prescription Drug Spending Increases by Very Low Rate

Apr 21, 2011

The national tab for prescription drugs last year grew at the second-slowest pace ever measured by a prominent health data firm.

Americans and their insurers spent $307.4 billion on prescription drugs in 2010, up just 2.3 percent from the previous year, according to data released Tuesday by IMS Health, Inc.. That’s a slowdown from a 5.1 percent increase in 2009. Earlier in the decade, annual increases went as high as 13 percent.

Only 2008, the depths of the recession, saw drug spending grow more slowly.

That’s bad news for drugmakers facing ever-growing competition to their pricey brand-name medications, but the slowdown also may be bad for doctors, and patients delaying needed medication.

A number of factors are slowing the growth:

  • People are visiting their doctors less. Visits slowed 4.2 percent to 1.54 billion in 2010. That downward trend began in mid-2009, as the unemployment rate remained stubbornly high and more people lost health insurance.
  • Patients are getting a bigger share of their prescriptions filled with lower-priced generic medicines. Generics accounted for 78 percent of retail prescriptions in 2010, up from 63 percent in 2006.

Use of generic drugs, which can cost a fraction of the price of brand-name medications, is skyrocketing, according to the IMS report. Spending on name-brand drugs fell 0.7 percent in 2010, while spending on cheaper, unbranded generics rose 21.7 percent.

The growth was driven by patients with no health insurance or financial problems, insurance company lists of preferred drugs and new generic versions of a number of widely used drugs such as Alzheimer’s treatment Aricept and blood thinner Lovenox.

That will likely accelerate as cholesterol fighter Lipitor, the world’s top-selling branded drug, will face generic competition in the U.S. after November.

While more drugs lost patent protection, drugmakers are having a hard time coming up with expensive new medicines like Lipitor that treat common, chronic ailments. Such drugs helped the drug business skyrocket in the 1990s and the beginning of the last decade.

Many of the 44 brand-name drugs introduced last year were for rare disorders or act similar to existing treatments. Those constraints limited spending on the new products as patients and insurers made careful choices based on economics.

The number of patients receiving new prescriptions for medications that treat chronic illnesses declined last year by 3.4 million to 68.8 million.

“If they’re delaying necessary care, that could be pretty bad for their health,” said Michael Kleinrock, director of research development for the IMS Institute for Healthcare Informatics.

In dollars, spending on chronic medications accounts for almost half of total spending, and big pharmaceutical companies have invested heavily in developing these medicines to ensure a steady revenue stream for many years.

Combined with the increasing difficulty of discovering new drugs, pricing pressure from insurance programs and encroachment by generic drugmakers, the drop in new patients starting chronic medicines is another worrying trend for brand-name pharmaceutical companies.

IMS found 63 percent of prescriptions filled last year were covered by commercial insurance, down from 66 percent in 2006, while the share of prescriptions filled under Medicare or Medicaid jumped from 22 percent to 30 percent over that period.

Information for this article came from IMS and Associated Press