Has The Era Of Slow Growth For Prescription Drug Spending Ended?
In the period 2005-13 the US prescription drug market grew at an average annual pace of only 1.8 percent in real terms on an invoice price basis (that is, in constant dollars and before manufacturers' rebates and discounts). But the growth rate increased dramatically in 2014, when the market expanded by 11.5 percent-which raised questions about future trends. We determined the impact of manufacturers' rebates and discounts on prices and identified the underlying factors likely to influence prescription spending over the next decade. These include a strengthening of the innovation pipeline; consolidation among buyers such as wholesalers, pharmacy benefit managers, and health insurers; and reduced incidence of patent expirations, which means that fewer less costly generic drug substitutes will enter the market than in the recent past. While various forecasts indicate that pharmaceutical spending growth will moderate from its 2014 level, the business tension between buyers and sellers could play out in many different ways. This suggests that future spending trends remain highly uncertain.
Murray Aitken (MAitken@theimsinstitute.org) is executive director of the IMS Institute for Healthcare Informatics, in Parsippany, New Jersey.
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Ernst R. Berndt is the Louis B. Seley Professor of Applied Economics in the Alfred P. Sloan School of Management at the Massachusetts Institute of Technology, in Cambridge. He is a research associate at the National Bureau of Economics in Cambridge.
Ernst R
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David Cutler is the Otto Eckstein Professor of Applied Economics in the Department of Economics at Harvard University, in Cambridge. He is a research associate at the National Bureau of Economics.
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Michael Kleinrock is director of research development at the IMS Institute for Healthcare Informatics, in Plymouth Meeting, Pennsylvania.
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Luca Maini is a doctoral student in economics at Harvard University.
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Maini
D016208:Databases, Factual; D016527:Drug Costs; D017850:Economics, Pharmaceutical; D005260:Female; D005102:Health Expenditures / Q000639:trends*; D006801:Humans; D008297:Male; D008484:Medicaid / Q000191:economics* / Q000706:statistics & numerical data; D006278:Medicare / Q000191:economics; D055553:Prescription Drugs / Q000191:economics*; D012189:Retrospective Studies; D014481:United States
D055553:Prescription Drugs
Health Spending; Pharmaceuticals