BLE Focus

Fall 2002
Volume 109 - No. 3

BLE Focus

Prescription costs are rising quickly; are they lifesavers or just money-makers for the drug companies?

They are often called wonder drugs. Each day it seems the drug companies come up with a new pill that saves lives, but at what cost. The costs of prescription drugs are rising quickly leaving some workers and, especially elderly Americans scrambling to pay for their pills. How do they spend all of that money?

Spending on outpatient prescription drugs dispensed through U.S. retail stores and pharmacies grew 17.1 percent from 2000 to 2001, according to a study from the National Institute for Health Care Management Foundation.

Last year was the fourth year in a row that spending on prescription medicines escalated 17 percent or more.

Spending on drugs in the retail marketplace (pharmacies, food and discount stores, and mass merchandisers) rose to $154.5 billion in 2001 from $131.9 billion in 2000. Since 1997, retail spending on outpatient prescription drugs has nearly doubled, from $78.9 billion.

An increase in the sales of a relatively small number of drugs accounted for much of the one-year spending increase. Rising sales of just 50 drugs, out of 9,482 in the retail market, were responsible for 62.3 percent of the $22.5 billion increase in retail drug spending in 2001.

Sales of those 50 drugs rose 34.3 percent in 2001 compared to a 9.3 percent increase for all other drugs. Much of that sales increase was driven by a sharp rise in the volume of prescriptions. Pharmacies dispensed 25.4 percent more of the 50 drugs contributing most to the increase in sales. By comparison, pharmacies dispensed 1.7 percent more of all other drugs.

The study - Prescription Drug Expenditures in 2001: Another Year of Escalating Costs - found that an increase in the volume of prescriptions was the largest driver of escalating pharmaceutical costs. Retail pharmacies dispensed 3.1 billion prescriptions in 2001, up from 2.9 billion in 2000. This increase was responsible for 39 percent of the $22.5 billion one-year spending increase in 2001.

The average price of a prescription bought at a retail pharmacy rose 10.1 percent from 2000 to 2001, to $49.84 from $45.27.

The increase in the price of drugs accounted for a larger share of the overall rise in retail drug spending in 2001 than in recent years. It was responsible for 37 percent of the rise in expenditures in 2001. In 2000, prices increases accounted for 22 percent of the one-year increase in retail drug spending. This is largely attributable to an aggregate 6 percent increase in the retail price for prescription drugs in 2001, compared to an average 3.6 percent increase per year from 1993 to 2000.

The shift to prescribing more expensive (and mostly new) medicines was responsible for 24 percent of the one-year rise in retail pharmaceutical spending in 2001. In 2001, for example, the average price of the 50 best-selling drugs was $71.56. The average price of a prescription for all other drugs was $40.11. That price differential is one reason that increases in the sales of the top-selling drugs can have a large impact on retail pharmaceutical expenditures.

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