Contribution of Pharmaceuticals to Rising Medical Costs

By / 7.11.2018

Several times in the past, I’ve examined the contribution of pharmaceuticals to rising health care costs (here, here, and here). It seems appropriate to do again, given President Trump’s latest tweets on drug prices, and Pfizer’s decision to roll back recent price hikes.

I note first that an April 2018 report from the IQVIA Institute entitled Medicine Use and Spending in the U.S.   found that net spending on medicines (including both generics and branded products, and both retail and institutional use)  rose by only $1 billion in 2017, or 0.6%. By contrast total personal healthcare spending is projected to have risen by $124 billion, or 4.4% in 2017. That means there is no sign of out-of-control drug spending in 2017.

In the first five months of 2018, the average price of prescription drugs rose by 2.5%, according to data from the Bureau of Labor Statistics. That’s almost identical to the overall consumer price inflation of 2.4%. So there’s no sign from the BLS data of excess drug price increases in 2018. 

Finally, we do a five year look-back (2012-2017), which includes the high cost years of 2014 and 2015.  We find that net spending on medicines rose by $68 billion over that stretch, or 26.7%. By comparison, total personal health care spending rose by $591 billion over that stretch, or 25.0%. In other words, generic and branded medicines only contributed 12% of the increase in personal health care spending between 2012 and 2017.  Net spending on medicines rose at roughly the same rate as all other healthcare costs. 

Another useful comparison: Between 2012 and 2017, health care labor costs rose by an estimated $231 billion,  contributing almost 40% of the increase in personal healthcare spending.  These are mostly propelled by the rapid increase in the healthcare workforce, which has increased by 1.4 million since 2012 alone.

All told, policy makers who are concerned about healthcare costs would be better off focusing on restraining the runaway growth of healthcare workers.