Prescription drugs have drawn significant policy and public attention in discussions of rising health care costs in the United States. However, their actual contribution to the growth of total health care spending remains uncertain. Drawing on data from the National Health Expenditure Accounts and supplementary sources, this paper examines both overall and biopharmaceutical spending trends and evaluates the extent to which prescription drugs have driven expenditure growth over time. We find that while total health care spending has grown steadily over the past nine years, prescription drug spending has increased at a more moderate pace, and its contribution to real health care spending growth fluctuated considerably. Between 2016 and 2024, prescription drugs accounted for an average of 14.3 percent of annual growth. Our analysis finds that, over the same period, the remaining vast majority of health care cost growth comes from non-drug spending — primarily hospitals and physician services. These results indicate that although prescription drugs are an important component of the health care system, they are a very small source of long-term spending growth. We find that even freezing the growth in drug costs to zero would reduce total cost growth by 13.7%, leaving national health spending to continue to rise by $240.6 billion a year. Meanwhile, freezing hospital and physician spending together could reduce cost growth by 46.7%. These findings indicate that policy efforts narrowly focused on drug pricing are unlikely to achieve meaningful containment of overall health care spending absent complementary reforms targeting hospital and physician services.
Keyword: Prescription Drugs, Health Care Spending, Cost Decomposition
Read the full article here.