Pharma Revenues, Health Expenditures Set to Increase

Healthcare spending will rise modestly in the US over the next decade, as economic growth picks up, health reform provides expanded coverage, and the population continues to age, according to an annual analysis from the Centers for Medicare and Medicaid Services (CMS). These trends similarly will boost expenditures for prescription drugs, but not as quickly as in previous decades.

Outlays for healthcare in the US have grown much more slowly over the past three years, largely due to an economic decline that deterred individuals from seeing doctors and to increased cost-sharing requirements for the privately insured. Minimal growth is continuing this year, but expenditures will begin to rise in 2014, boosting the average growth rate for national health spending to 5.8% through 2022, according to the National Health Expenditure Projections from the CMS Office of the Actuary and published by Health Affairs. Much of the spending will come from public agencies, as healthcare financed by federal, state, and local governments reaches $2.4 trillion in 2022, nearly half of all national health outlays.

Similarly, spending on prescription drugs will shift from the flat or declining growth rates of recent years and begin to rise in 2014. Outlays on drugs this year will be $262 billion-approximately the same as in 2011-but will reach $276 billion next year and will continue to grow at an average rate of 6.5% a year for 2015-2022 when the total will be $455 billion. This rate still is below the 8.6% growth experienced in 2000-2009, but a big jump over the flat and declining rates of recent years.

The factors underlying the spending slow-down for pharmaceuticals are well known: rising sales of generic drugs, increased cost-sharing requirements that deter utilization, and lower spending on a diminished number of new medicines. Next year, outlays on prescription drugs are projected to rise 5.2% as more people gain insurance coverage through national and state insurance exchanges, the economic recovery continues, CMS reports, and fewer blockbuster therapies give way to new competitors. Generic drug dispensing is expected to level off at 85% of prescribing over the next decade, and drug use will rise as more individuals fill prescriptions.

While flat drug spending has been distressing to manufacturers, the trend also has helped industry fend off proposals for added controls on drug prices, higher rebates to government health programs, and curbs on pharma marketing. Rising sales and revenues will reignite these efforts and focus more attention on increasingly costly specialty drugs.