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Health Care Costs and Financing

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Despite some slowing, the growth in drug expenditures continues to outpace growth in overall health care expenditures

The growth in drug expenditures will continue to outpace the growth in overall health care expenditures and the growth in the U.S. economy, according to the authors of a recent study. They calculated that U.S. drug expenditures increased by 12.3 percent between 2001 and 2002, from $173 billion to $194 billion. This trend continued in the first half of 2003, but it slowed somewhat, with expenditures increasing by only 10 percent compared with 2002.

This moderation in drug expenditure growth, which will continue for the next few years, can be attributed to many factors. These include drug patent expirations (35 major brand-name drug patents will expire by 2008), conversion of prescription to over-the-counter drugs, and decreases in new drug approvals (the average cost to develop one approved drug rose from $138 million in the 1970s to nearly $2 billion today).

Higher cost-sharing for consumers and a general economic slowdown in the United States, which have affected employment and insurance coverage, have also resulted in a smaller increase in drug use, explains Nilay D. Shah, M.S., of the University of Wisconsin. She and fellow researchers project that in 2004, there should be a 10-12 percent increase in drug expenditures for outpatient settings, a 19-21 percent increase for clinics, and a 6-8 percent increase for hospitals, a trend that is expected to continue.

Thus, the researchers suggest that drug cost management initiatives in 2004 focus on clinic-administered medications, along with careful monitoring of Medicare drug reimbursement reform. Their findings are based on analysis of Express Scripts claims data, Medco Health claims data on prescription drug expenditures by managed care populations in the outpatient setting, and IMS Health data on prescription drug sales to retail and non-retail settings. The study was supported in part by the Agency for Healthcare Research and Quality (National Research Service Award training grant T32 HS00083).

Details are in "Projecting future drug expenditures—2004," by James M. Hoffman, Pharm.D., Ms. Shah, Lee C. Vermeulen, M.S., and others, in the January 15, 2004, American Journal of Health-System Pharmacy 61, pp. 145-158.

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