Rising Expenditures for Prescription Drugs

Spending in the US for prescription drugs was $200.7 billion in 2005, almost 5 times more than the $40.3 billion spent in 1990.

Although prescription drug spending has been a relatively small proportion of national health care spending compared to spending for hospital and physician services (10% in 2005, compared to 31% and 21%, respectively), it has been one of the fastest growing components, increasing from 1994 to 2003 at double-digit rates compared to single-digit rates for hospital and physician services.

However, the annual rate of increase in prescription spending declined from a high of 18% in 1999 to 6% in 2005. That is slightly lower than the 8% increase for hospital care and 7% for physician services in 2005. Prescription spending growth declined because of the slowdown in Medicaid drug spending, the increased use of generic drugs (driven in part by the proliferation of tiered copayment benefit plans), changes in the types of drugs used, and a decrease in the number of new drugs introduced.