Why Prescription Spending Grew Less than Inflation in 2017

Patent expirations and generic competition have offset growth.

Last year, Americans took more prescription medicines than ever before due in part to efforts to improve adherence. In addition, the number of new medications approved more than doubled from 2016. But if you think the country is paying substantially more at the pharmacy as a result, you may be surprised.

Prescription medication spending increased just 0.6 percent last year, less than the rate of inflation and the lowest growth rate since 2012, according to a report published by the IQVIA Institute for Human Data Science. Murray Aitken, executive director of the IQVIA Institute, explains why prescription spending growth has remained in check, why growth in prescription spending isn’t necessarily a bad thing and what we can expect in the near future.

MURRAY AITKEN, EXECUTIVE DIRECTOR OF THE IQVIA INSTITUTE, BELIEVES HIGH GROWTH IN PRESCRIPTION SPENDING CAN REPRESENT GOOD VALUE IN TERMS OF LONGER, HEALTHIER LIVES.

MURRAY AITKEN, EXECUTIVE DIRECTOR OF THE IQVIA INSTITUTE, BELIEVES HIGH GROWTH IN PRESCRIPTION SPENDING CAN REPRESENT GOOD VALUE IN TERMS OF LONGER, HEALTHIER LIVES.

Why was the growth rate for prescription medication spending just 0.6 percent in 2017?

“That relatively low rate is due to patent expirations and lower cost generics, which are offsetting the growth from new therapies and price increases. In fact, a record-setting 1,027 generic medications were approved in 2017. If we look at retail and mail-order prescriptions, spending actually declined 2.1 percent last year, as we had more new injectable and infusible treatments than oral treatments last year. The prescription spending growth rate in 2017 is significantly lower than the 9 to 10 percent that we saw in 2014 and 2015, which were historically high levels of growth.”

What happened in 2014 and 2015 that caused those high rates of growth in prescription spending?

“Between 2014 and 2015, we saw the rise and fall of hepatitis C spending, as therapies that cured a significant number of patients were introduced. Since that wave of innovation, spending has grown more slowly.

“When innovative therapies are introduced that address an unmet need for many patients, spending will go up as we saw in hepatitis C. That is not a bad thing. That growth is supported by the value that innovative therapies provide in the form of longer and better lives. When we get an effective therapy for Alzheimer’s, for instance, we will see spending increase as we treat the millions of Americans to improve their lives and reduce other healthcare costs of caring for those with the disease.”

Prescription Drug Spending Increased Just 0.6% in 2017

How are the prescription spending growth rates in your report different from those that we see elsewhere?

“First, we are not basing our analysis on list price. We are looking at the revenue manufacturers receive after all the rebates, discounts, coupons and vouchers have been accounted for. Secondly, we are reporting on the total use of all medicines through all distribution channels, not just individual medications. Individual medication costs tend to make headlines but aren’t necessarily reflective of the overall market.”

Are patients paying more for prescription medications because of price increases?

“Over the past five years, patient out-of-pocket costs have actually declined by 15 percent to $8.69 per prescription on average in 2017. These lower out-of-pocket costs are due to higher usage of generics and manufacturers’ coupons.

“But patients’ out-of-pocket costs remain high for a small number of prescriptions. Patients paid more than $500 for about 0.2 percent of all prescriptions in 2017. These patients are usually those in the coverage gap of Medicare plans or the deductible phase of their insurance plans. They may get the same medicine for less at a different time of year.”

Patient Out-of-Pocket Costs Down 15% Since 2013

What is the outlook for prescription spending and patient costs over the next few years?

“While there are many uncertainties, including government policy, we don’t foresee any major disruptions over the next five years. So we’re forecasting spending growth to average between 2 and 5 percent per year. Growth will continue to be driven by innovation in various disease areas, but especially in oncology. That growth will continue to be offset by expirations of patents, which are designed to keep spending in check over the long term.”

To learn how medical innovation saves lives and has reduced health expenditures, read “When It Comes to Healthcare Costs, New Medicines Are the Solution, Not the Problem.”