Drug Prices Up as Health Spending Slows Down

Drug prices are going up again at a time when overall health spending is slowing down. The U.S. Bureau of Economic Analysis reported that prescription drug costs rose 3.6% in 2012, more than double the 1.7% inflation rate. This news comes at the same time that slowing growth in healthcare spending overall led the Congressional Budget Office to reduce its estimates of federal spending on healthcare by hundreds of millions of dollars.

A recent report from Express Scripts paints a more complex picture. Spending on drugs for common conditions like high cholesterol and hypertension were actually driven down in 2010 by the availability of more generic drugs. But prices for brand name drugs rose 12.5% and spending for specialty drugs rose 18.4%, more than offsetting savings from generic drugs.

The sharp contrast between these vastly different types of prescription drugs perfectly illustrates how we’re paying for medical innovation. Highly innovative specialty medicines for conditions like rheumatoid arthritis, cancer, and hepatitis C command high prices because of the great unmet medical need. Brand name drugs finance the cost of research through high prices while they still hold a patent. Generic drugs provide downward price pressure when patents expire.

“This price system is a blessing as well as a frustration,” according to Lee Rucker of the AARP Public Policy Institute. The benefits of fostering innovation can be offset by patents that extend too long and doctors who don’t understand the costs of their prescribing decisions.

Click here to read more about the Express Scripts study from Reuters and here to read more in USA Today.

Going Up, image © Marcus Quigmire / Wikimedia

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