U.S. Rx Drug Spend Will Top $500 Bil. Annually In 10 Years, CMS Predicts

Annual prescription drug expenditure in the U.S. is expected to exceed $500 bil. for the first time in 2013, Centers for Medicare & Medicaid Services data say.

In its "National Health Care Expenditures Projections: 2003-2013," released Feb. 11, CMS projects annual drug spend will reach $519.8 bil. in 2013.

The 2013 figure is close to triple the projected drug expenditure for 2003 of $184.1 bil. In 2004, CMS anticipates a drug spend of $207.9 bil.

The latest ¹ CMS projections confirm the agency's previous predictions of a continued slowdown in the growth rate for drug spending. The 2003 figure represents a 13.4% increase over the $162.4 bil. spent on drugs in 2002, or a two percentage point drop from the 15.3% growth rate seen the prior year.

The growth rate is expected to eventually drop into the single digits; the projected rate in 2013 is 9.2%.

However, CMS' projections document says that "while prescription drug spending continues to decelerate, as it has previously, we project that it will still be the fastest-growing sector in health care, growing 13.4% in 2003."

CMS Office of the Actuary Deputy Director Stephen Heffler told a Kaiser Family Foundation briefing Feb. 11 in Washington, D.C. that drug spend growth over the 10-year projection period "is 11.2% on average each year, which is four percentage points faster than overall health care."

"Therefore, the prescription drug spending share of health care increases by nearly 50%," he said, moving from 10.5% in 2002 to 15.5% in 2013.

CMS cited a number of reasons for the slowing drug growth rate.

"The deceleration over the 2003-2013 period is due to slower growth in drug prices, the expiration of patent protection for several top-selling drugs, and increased use of multi-tiered copays that have slowed demand," the projections report says.

CMS recently released 2002 data citing greater use of tiered formularies by health plans as a reason for the slowdown that year, as well as an increase in patients' out-of-pocket spending for drugs (² (Also see "Rx Out-Of-Pocket Spending Growth Accelerates To 14% In 2002 – CMS" - Pink Sheet, 12 Jan, 2004.), p. 4).

Heffler noted that the Consumer Price Index for prescription drugs dropped to 3.6% in 2003 from 5.2% in 2002, a "significant deceleration."

The state of the industry R&D is another reason CMS is predicting a continued slowdown in growth. "We get the sense that there aren't blockbuster drugs that are in the pipeline that are expected to come to market in the next few years," Heffler said.

In an ³ article published on the Health Affairs web site, Heffler, et al., suggest other potential reasons for the "deceleration."

"New drug introductions and direct-to-consumer advertising - two of the main factors behind the recent acceleration - have begun to grow at much slower rates," the article says.

"In addition, several health insurers have recently merged to create even larger buying pools. These insurers could use their increased buying power to apply pressure on drug manufacturers to keep the growth of drug prices lower than in previous years."

The impact of the Medicare prescription drug law was not included in the projections, but CMS plans to update the projections to reflect the law in a later report.

However, while CMS expects the Medicare drug program to cause shifts among payors for prescriptions, it does not expect the legislation to have a large effect on overall drug expenditures.

"We do not anticipate that the Medicare prescription drug card program will greatly alter the projected growth rates in aggregate drug spending for 2004 and 2005, mainly because decreases in prices could be offset by increases in use," the article says. "Also, only beneficiaries without current drug coverage are eligible to enroll."

When the full drug benefit begins in 2006, "this increased use might be partially offset by lower drug prices under Medicare coverage for currently uninsured beneficiaries and those with Medigap drug coverage."