Use, not price, drives drug spending

December 1, 2000

Pharmaceutical Representative

The increased use of medicines, not rising prices, is the cause of higher prescription drug spending.

The increased use of medicines, not rising prices, is the cause of higher prescription drug spending, according to two new studies. The first study, co-authored by healthcare research firms, Protocare Sciences, Santa Monica, CA, and The MEDSTAT Group, Ann Arbor, MI, examined the price and volume drivers that influence the growth in spending on prescription drugs in several categories, including asthma, depression, diabetes, high cholesterol, allergies, gastrointestinal problems and hormone replacement.

According to the study, which appears in Health Affairs (vol. 19, no. 2), volume increases, on average, outweighed price increases by a ratio of 5-to-1. Typically, volume increases were driven by more patients, more prescriptions per patient and more days of therapy for the seven chronic diseases studied. The authors' broad definition of price included not only price inflation, but also the effects of any shifts to newer medicines. The study found increases in drug category expenditures ranging from 43% to 219% over a three-year period (1994 through 1997 or 1995 through 1998).

"New scientific knowledge enables doctors to identify patients at higher risk, diagnose them more accurately and earlier, and more effectively treat the diseases found," said Robert Dubois, chief executive officer of Protocare Sciences. "Medical science has made tremendous gains in effective treatments for patients with chronic disease, and more patients are receiving what science has proven to be effective. In the health plans we studied, a greater percentage of their patients received, for example, cholesterol-lowering or hormone replacement therapy. Translating new science into routine practice means better care for patients."

A second study

An additional study, published by the Washington-based Employee Benefit Research Institute in the September issue of EBRI Notes, points out that national health expenditure growth has slowed for the other major sources of healthcare, specifically hospital and physician services expenditures. According to the article, in response to this growing expenditure, many employers are planning to revise, or have revised, their drug benefits by changing copayment levels and/or introducing formularies (lists of preferred or covered drugs in a drug benefit plan), or refining those already in use.

According to the article, the result will be higher out-of-pocket costs for workers, which could have an impact on some participants' willingness to take health insurance coverage when it is offered. "The consequences of this change in employers' drug benefit plans will depend on plan participants' ability and willingness to accept increased out-of-pocket expenses," said Dallas Salisbury, president and chief executive officer of EBRI. "This is particularly significant in view of prescription drugs' increasing importance in treating many illnesses, as well as their potential to substitute for other healthcare services."

Some other key findings of the article:


•Â Prescription drugs accounted for 7.9% of all national expenditures in the United States in 1998, up from 5.4% in 1990. Total prescription drug expenditures increased by 15.4% in 1998, compared with 14.6% in 1990.


•Â Starting at about 1993, the driving force behind the increasing costs appears to be a higher volume of prescription drugs purchased, rather than drug price increases. A study of physician visits found a significant increase in the number of new prescriptions written from 1993 to 1997.


•Â Nearly all employers (99%) that offered healthcare benefits also offered prescription drug benefits in 1999. However, 42% of employers said they had changed or would change their drug benefit plan in 1999 or 2000. Most of the changes involve increasing the cost-sharing with plan participants through higher copayments.


•Â The exception to the accelerating trend in prescription drug expenditures is out-of-pocket payments, which accounted for 50% of prescription drug expenditures in 1990 and 25% in 1998.

The increase in prescription drug expenditures is likely to continue. Concluded Dubois, "New science, better medical practice, and identifying more patients with chronic disease, not surprisingly, increase prescription volume and may further fuel total drug spending." PR

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