New York Times: New Drug Approvals Help Explain Spending Fluctuations

November 15, 2018 3:40 pm

Why are there disparities between drug prices in the United States and Europe, and why has drug spending in the United States fluctuated over the last two decades? The New York Times tried recently to answer these questions and its conclusion, it seems, is the one we’ve discussed several times on this blog: innovation.


While pointing out, “relative to total health spending,” U.S. drug spending is “consistent with” other countries as well as discussing the United States’ “refusal” to cap drug prices, Austin Frakt, a professor at both Harvard and Boston University and director of the Partnered Evidence-Based Policy Resource Center, examined the breakthrough treatments that boosted overall drug spending in the United States about 20 years ago. 


Until the mid-1990s, U.S. per capita drug spending was similar to spending in Europe, but then, Frakt says, “a record number of new drugs emerged,” including new treatments for hypertension and cancer. Harvard Medical School’s Aaron Kesselheim told Frakt, “The scientific explosion of the 1970s and 1980s that allowed us to isolate the genetic basis of certain diseases opened a lot of therapeutic areas for new drugs.”


Another factor contributing to the increase in drug spending was that, in the mid-2000s, “coverage for drugs (as well as for other health care) expanded through public programs” like Medicaid, Medicare, and the Children’s Health Insurance Program. Frakt notes that, when new markets emerge, new drugs follow.


Drug spending slowed in 2007 and, according to Frakt, that’s because the Food and Drug Administration (FDA) approved fewer drugs. Total annual approvals fell from about 35 new drugs in the late 1990s and early 2000s to about 20 per year from 2005 to 2007. Also at that time, patents on some popular drugs expired and generics came onto the market.


Spending on drugs crept back up in the following years, Frakt explains, as new breakthroughs came into the market to treat hepatitis C, cystic fibrosis, and other conditions.


While drug spending today is rising very slowly—spending on medicines increased just 0.6 percent in 2017 after taking into account rebates and discounts—the United States continues to innovate.


In its report on 2017 approvals, the FDA’s Center for Drug Evaluation and Research (CDER) noted that, last year, it approved “the first new treatment for patients with sickle cell disease in almost 20 years and the first-ever non-blood product to treat patients with hemophilia A with inhibitors.” Additionally, the CDER approved new therapies to treat several cancers, including acute lymphoblastic leukemia, Merkel cell carcinoma, and specific forms of liver, breast, and colorectal cancer, and it approved a new treatment for Batten disease, a rare condition that can cause seizures and dementia.