Drug Spending on the Rise

Bloomberg News reports on a few recent findings on prescription drug prices, including the Medco 2010 Drug Trend Report and the AARP’s latest study released last week. Spending on prescription drugs spiked higher than it had in the prior three years in 2009, the reports indicate, due in part to a 9.2% increase in brand-name prescription drug prices. Despite this inflation, the AARP reports that general inflation remained flat — meaning that drug prices are rising at a rate higher than that of most other products.

Why are prescription drugs so expensive?

Prescription drugs have always been expensive, but the recent rise in prices results from the pharmaceutical pipeline drying out — that is, among new pharmaceutical products undergoing testing leading up to the approval process, there are no earth-shattering new discoveries that will ensure billions of dollars in profit for the pharmaceutical company that developed it. Therefore, drug companies are seeking to earn their profits in advance, by bumping up the prices of current products on the market.

The price increases aren’t the only cause for the spike in spending, however. Increased overall usage is also a factor, and, surprisingly, the aging population is NOT the demographic showing the greatest increase in prescription drug usage, despite the fact that it is the fastest growing segment of the population. Believe it or not, prescription drug usage by children up to age 19 grew four times faster than that of the general population. This is caused by an increased diagnostic rate of children with chronic diseases, like diabetes and attention deficit-hyperactivity disorder (ADHD).

Pharmaceutical companies step up to help with the health care overhaul

Pharmaceutical companies get a bad rap because of the high costs of prescription drugs, but it is worth noting that they have agreed to contribute $90 billion to help overhaul the health care system over the next ten years. These funds will be used to offer a 50-percent discount to the elderly who purchase their drugs through Medicare Part D, and nearly a third of the money consists of new taxes.

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