PRESCRIPTION DRUG TRENDS
`
` October 2004
`
`
`
`Overview
`National attention is focused on prescription drugs because of
`rapidly rising prescription costs and issues relating to
`implementation of the new Medicare drug benefit. Growing
`concerns about the affordability of needed drugs, coupled
`with the significant profitability of drug manufacturers, are
`causing policymakers and others to consider new approaches
`to addressing drug costs.
`
`Rising Expenditures for Prescription Drugs
`Spending in the U.S. for prescription drugs was $162.4 billion
`in 2002, 4 times larger than the amount spent in 1990.
`Although prescription drug spending is a relatively small
`proportion (11%) of national health care spending, it is one
`of the fastest growing components, increasing at double-digit
`rates in each of the past 8 years. National prescription
`spending increased 15% from 2001 to 2002, compared to an
`8% increase for physician and clinical services and a 10%
`increase for hospital care (Figure 1).
`
`25%
`
`20%
`
`15%
`
`10%
`
`5%
`
`0%
`
`Figure 1
`Change in Selected National Health Expenditures, 1970-2002
`
`Average Annual Percent
`Change, Prior 10 Years
`
`14%
`13%
`
`13%
`
`13%
`
`10%
`
`8%
`
`Annual Percent Change
`20%
`
`11%
`
`6%
`
`6%
`
`6%
`
`4%
`
`3%
`
`6%
`
`4%
`
`15%
`
`10%
`
`8%
`
`1980
`
`1990
`
`1993
`
`1996
`
`1999
`
`2002
`
`Hospital Care
`
`Physician and Clinical Services
`
`Prescription Drugs
`
`
`Source: Data from Centers for Medicare and Medicaid Services at
`www.cms.hhs.gov/statistics/nhe/default.asp (National Health Accounts).
`
`Factors Driving Increases in Prescription Spending
`Three main factors are driving the increases in prescription
`drug spending (Figure 2):
`• the increasing number o prescriptions (utilization) wasf
`
`responsible for 42% of the overall increase in prescription
`spending from 1997-2002;
`
`• changes in the types of dugs used (with newer, higher-r
`
`priced drugs replacing older, less-expensive drugs)
`accounted for 34% of the increase; and
`
`• manufacturer price increases for existingdrugs
`accounted for 25% of the increase.
`
`Figure 2
`
`The Relative Contributions of Price, Utilization, and Types of
`Prescription Drugs Used to Rising Prescription Drug Expenditures,
`1997-2002
`
`Number of
`Prescriptions
`Dispensed
`
`42%
`
`34%
`
`Types of
`Prescriptions
`
`25%
`
`Manufacturer
`Price Increases
`
`
`Source: KFF analysis of price and utilization data from IMS Health and expenditure
`
`data from Centers for Medicare and Medicaid Services at
`www.cms.hhs.gov/statistics/nhe/default.asp (National Health Accounts).
`
`Among the key trends are:
`• Utilization. From 1993 to 2003, the number of
`prescriptions purchased increased 70% (from 2.0 billion
`to 3.4 billion), compared to a U.S. population growth of
`13%; the average number of prescriptions per capita
`increased from 7.8 to 11.8.1
`
`•
`
`•
`
`Price. Retail prescription prices (which reflect both
`manufacturer price changes for existing drugs and
`changes in use to newer, higher-priced drugs) have
`increased an average of 7.4% a year from 1993-2003,2
`more than double the average inflation rate of 2.5%.3
`
`Changes in Types of Drugs Used. TMost of the top-
`selling prescriptions are newer, higher-priced brand name
`drugs, whose availability is affected by the research and
`development (R&D) activities of pharmaceutical
`manufacturers and government-supported research.
`Manufacturer R&D spending increased from $12.7 billion
`in 1993 to an estimated $33.2 billion for 2003, with R&D
`4
`estimated to be 17.7% of sales in 2003. New drug use
`is also affected by the number of new drugs (new
`molecular entities) approved by the U.S. Food and Drug
`Administration, typically about 30 a year over the past 10
`5
`years, but only 21 in 2003.
`
`The Henry J. Kaiser Family Foundation is a non-profit, private operating foundation dedicated to providing information and analysis on health care issues to
`policymakers, the media, the health care community, and the general public. The Foundation is not associated with Kaiser Permanente or Kaiser Industries.
`2400 Sand Hill Road, Menlo Park, CA 94025 Phone: (650) 854-9400 Facsimile: (650) 854-4800 www.kff.org
`Washington, DC Office: 1330 G Street, NW, Washington, DC 20005 Phone: (202) 347-5270 Facsimile: (202) 347-5274
`
`Medac Exhibit 2081
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`seeking supplemental rebates (26 states), and making more
`drugs subject to prior authorization (21 states).13
`
`Outlook for the Future
`U.S. spending for prescription drugs is projected to increase
`by 10.7 percent annually between 2004 and 2013.14 This is a
`slower growth rate than we have seen in recent years, with
`the slowdown due in part to fewer new drugs being
`introduced into the market, a reduction in direct-to-consumer
`advertising, the impending loss of patent protection for some
`leading drugs, new cost-sharing provisions in private
`insurance contracts, and a lower rate of price growth.15 On
`the other hand, implementation of the new drug benefit in
`Medicare is likely to increase aggregate drug spending by
`improving the financial access of elderly and disabled
`edicare beneficiaries to prescription drugs.
`M
`
`1 IMS Health website at www.imshealth.com and Census Bureau at
`www.census.gov. The 2003 number of prescriptions per capita (11.8)
`differs from the 10.8 on www.statehealthfacts.kff.org because the data
`come from different sources (IMS Health vs. Verispan).
`2 National Association of Chain Drug Stores, “Industry Facts-at-a-Glance,”
`at www.nacds.org, using data from IMS Health.
`3 Bureau of Labor Statistics at www.bls.gov.
`l 4 Pharmaceutical Research and Manufacturers of America, Pharmaceutica
`
`Industy Pofile, various years, at www.phrma.org/publications.
`r r
`5 US Food and Drug Administration at www.fda.gov/cder.
`6 Forune, April 5, 2004.
`t
`7 IMS Health website at www.imshealth.com. Physician promotion
`excludes amounts for professional meetings and events.
`8 US Department of Health and Human Services, Prescription Drug
`t t
`Coverage, Spending, Uilizaion, and Prices: Report to the President, April
`2000.
`9 Kaiser Family Foundation, Trends in Medicare Supplemental Insurance
`r
`and Presciption Drug Benefits, 1996-2001, M. Laschober, June 2004.
`10 Kaiser 2003 Health Insurance Survey, 2003.
`11 Kaiser Family Foundation/The Commonwealth Fund/Tufts-New England
`Medical Center, Seniors and Pescription Drugs Findings Fom a 2001
`r
`:
`r
`t
`r
`Survey of Senios in Eight Staes, July 2002, p.25.
`12 Kaiser Family Foundation and Health Research and Educational Trust,
`Employer Health Benefits: 2004 Annual Survey, September 2004.
`13 Kaiser Commission on Medicaid and the Uninsured, The Coninuing
`t
`t
`
`Medicaid Budget Challenge: Stae Medicaid Spending Growth and Cost
`r
`t
`Containment in Fiscal Years 2004 and 2005: Results fom a 50-Stae
`Survey, October 2004.
`14 Health Affairs, “Health Spending Projections Through 2013,” Feb. 11,
`2004, at www.healthaffairs.org. Note that this projection does not
`take into account the impact of the Medicare Modernization Act of 2003.
`15Health Affairs, “Health Spending Projections Through 2013,” Feb. 11,
`2004, at www.healthaffairs.org.
`
`
`
`For More Information
`This Fact Sheet (#3057-03) and the following reports are available on
`the Kaiser Family Foundation’s website at www.kff.org: Trends and
`Indicators in the Changing Health Care Marketplace, 2004 Update
`
`(#7031), Prescription Dug Trends—A ChartbookUpdate (#3112), r
`
`
`Medicare and Prescipion Drugs (#1583-06), Medicaid Prescription Drugr t
`
`Spending and Use (#7111), Medicaid and Presciption Drugs (#1609-02), r
`
`
`Federal Policies Affecing the Cost and Availability o New t f
`
`Pharmaceuticals (#3254), Employer Health Benefits, 2004 (#7148),
`
`Retiree Health Benef s Now and in the Future, (#6105). See also it
`www.statehealthfacts.kff.org for state-specific prescription drug
`utilization, sales, and average prices (under Health Costs & Budgets).
`
`
`
`
`From 1995-2002, pharmaceutical manufacturers were the
`nation’s most profitable industry. In 2003, they ranked third,
`with profits (return on revenues) of 14% compared to 5% for
`all Fortune 500 firms.6
`
`Both prescription use and shifts to higher-priced drugs are
`affected by advertising. Manufacturers spent $25.3 billion for
`advertising in 2003, with $22.1 billion (87%) directed toward
`physicians (including $16.4 billion for the retail value of drug
`samples), and $3.2 (13%) billion directed toward consumers.
`Spending for direct-to-consumer advertising -- typically to
`advertise newer, higher-priced drugs – was over 8 times
`greater in 2003 than in 1995.7
`Insurance Coverage for Prescription Drugs
`In 1996, 23% of nonelderly Americans had no drug coverage
`(more recent data are not available), including those without
`any health insurance for some or all of the year.8
`Additionally, more than a third (36%) of Medicare
`beneficiaries had no prescription drug coverage in the Fall of
`2001.9 Under the Medicare Prescription Drug, Improvement,
`and Modernization Act of 2003, Medicare will offer a
`voluntary prescription drug benefit beginning in 2006.
`
`Lack of drug insurance can have adverse effects. A recent
`survey found that 37% of the uninsured said they did not fill
`a prescription because of cost, compared to 13% of the
`insured.10 A 2001 survey of seniors in 8 states (42% of US
`adults age 65+) found that in the last 12 months, 35% of
`seniors without prescription drug coverage either did not fill a
`prescription 1 or more times or skipped doses of medicines to
`make the prescription last longer, compared to 18% with
`drug coverage.11
`
`Private and Public Responses
`Employer-sponsored health plans have responded to
`increasing prescription drug costs by establishing tiered cost-
`sharing formulas and increasing drug copayments. In 2004,
`a majority (68%) of workers with employer-sponsored
`coverage have at least 3 tiers of cost-sharing arrangements,
`two and a half times the proportion in 2000 (27%).
`Copayments for nonpreferred drugs (those not included on a
`formulary or preferred drug list) have increased 94% during
`the same time period, from an average of $17 per
`prescription in 2000 to $33 in 2004. Copayments for
`preferred drugs (those included on a formulary or preferred
`drug list, such as a brand name drug with a generic
`substitute) increased by 62%, from $13 in 2000 to $21 in
`2004.12
`
`Cost containment initiatives in the area of prescription drugs
`were implemented by 47 states and the District of Columbia
`in FY2004 for Medicaid, the public program that plays a key
`role in providing outpatient pharmacy services to the low-
`income population. These initiatives included making more
`drugs subject to prior authorization (33 states) and having
`preferred drug lists (27 states). For FY2005, 43 states have
`indicated they would implement new or additional pharmacy-
`related initiatives, including preferred drug lists (29 states),
`
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