Life Science Compliance Update

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January 04, 2018

How 2016 Drug Spending Stacks Up

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We have written many times about the way growth in drug spending has significantly been below the growth rate of overall national healthcare spending, despite the media spotlight on the issue.

Total nominal United States health care spending increased at a rate of 4.3% and reached $3.3 trillion in 2016. Per capita spending on health care also increased by $354, totaling $10,348. Health spending growth did decelerate in 2016, however, following faster growth in 2014 and 2015 associated with coverage expansions under the Affordable Care Act and strong retail prescription drug spending growth.

In 2016 the slowdown was broadly based, as spending for the largest categories by payer and by service decelerated. Enrollment trends drove the slowdown in Medicaid and private health insurance spending growth in 2016, while slower per enrollee spending growth influenced Medicare spending. Furthermore, spending for retail prescription drugs slowed, partly as a result of lower spending for drugs used to treat hepatitis C, while slower use and intensity of services drove the slowdown in hospital care and physician and clinical services.

Going a step further, a recent post online shows that in 2016, all payers had a slowdown in spending – employers’ drug spending was essentially flat while consumers paid less out of pocket (on average). Additionally, spending by government payers exceeded the spending by employers for the third year in a row.

More specifically, private health insurance, the largest payer of prescription drugs with a 43 percent share in 2016, experienced a sharp slowdown from 10.4 percent growth in 2015 to just 0.8 percent in 2016.

Medicare prescription drug spending, which accounted for a 29 percent share in 2016, decelerated from a rate of 9.3 percent in 2015 to 2.8 percent in 2016, driven by slower growth in spending for hepatitis C and diabetes drugs. Medicaid spending on prescription drugs, which constituted a share of 10 percent, slowed to a rate of 5.5 percent in 2016 following two years of double-digit growth primarily associated with expanded Medicaid enrollment.

Out-of-pocket prescription drug spending, accounting for a 14 percent share in 2016, declined 1.0 percent because of the increased use of generics, more patients having zero out-of-pocket costs because of insurance arrangements, and contributions made by manufacturers, such as copayment coupons, to offset patients’ out-of-pocket spending.

In 2016, fewer new medicines were approved—twenty-two compared to forty-five in 2015 and forty-one in 2014. Spending for brand-name drugs, which accounted for almost three-quarters of total retail prescription drug spending in 2016, grew more slowly partially because spending for drugs used to treat hepatitis C decreased, as fewer patients received treatment and net prices for these drugs declined. Furthermore, aggregate spending growth for diabetes drugs decelerated in 2016 even as diabetes remained one of the fastest-growing therapeutic segments.

Spending for generic drugs (excluding brand-name generics), which constituted 15.0 percent of total prescription drug expenditures, declined in 2016 primarily because of slower growth in prices.

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