Pharma Expenditures Keep Rising

The National Institute of Health Care Management made headlines with its report on double-digit increases (17 percent) in retail spending on medicines in 2001. The total reached $155 billion last year, almost double the $80 billion spent in 1997, according to the study, "Another Year of Escalating Costs." PhRMA president Alan Holmer said the increase is a good thing, signifying that more people who need medicines for chronic conditions are being treated and thereby avoiding more expensive medical procedures.

The report identifies three factors responsible for more spending: an increase in prescribing (39 percent), price hikes (37 percent), and a shift to more expensive drugs (24 percent). The "shift effect" to pricier products was only 24 percent last year, compared with 36 percent from 1999 to 2000, largely because fewer new blockbusters came on the market. Also, the pace of growth may be slowing. Last year's 17 percent increase is less than the 18-19 percent hikes of previous years. But spending could shoot up if the government expands coverage for Medicare beneficiaries .

US. Retail Spending on Perscription Drugs

Even if drug outlays rise more slowly, they still will exceed the growth in spending on physicians and hospitals. Several factors will continue to drive pharmaceutical spend, including expanded use of medicines to treat chronic conditions, increased prescribing by physicians, and heavy marketing of new products.