Drug Costs

Unpacking New Data on Drug Spending

May 22, 2019 3:10 pm

The Altarum Center for Value in Health Care last week released its monthly examination of health-care spending in the United States. As the Arnold-funded Patients for Affordable Drugs reported on Twitter, the report showed prescription-drug spending rose between March 2018 and March 2019 at a higher rate than expected.


As is often the case on social media, 280 characters cannot provide full context.


Here’s how POLITICO’s “Morning Pulse” summarized the data: “Health-care prices continue to grow at ‘amazingly low’ rates. Year-over-year health care price growth was 1.5 percent.” What is driving the slow rate of increase? As POLITICO explained, “[L]ow drug-price growth.”


So how did the Patients for Affordable Drugs tweet get the story wrong?


There are two factors: the tweet didn’t account for drug manufacturer rebates, and it also didn’t explain what Altarum found for April 2019.


Based on data compiled by the U.S. Bureau of Economic Analysis (BEA), Altarum determined spending on prescription drugs rose 8.7 percent between March 2018 and March 2019. This increase came after a relatively small increase between March 2017 and March 2018. In that year-over-year analysis, prescription-drug spending rose only 2.8 percent, the lowest bump of any major health spending category. From March 2016 to March 2017, the increase in drug spending was only 0.7 percent.


As Altarum notes, the data for March 2019 is “preliminary” and “does not account for rebates from drug manufacturers, which are not available to the government until much later.”


Emphasis in that sentence is ours and it means that, when these headline numbers come out, we don’t actually have the full story. The BEA will update its health spending data in a couple months, but even then Altarum won’t have enough information to properly account for how drug manufacturer rebates affected overall spending.


Until all of the data is available, Altarum said, it’s impossible to know whether the reported rise in prescription drug spending “is real.”


If data from April 2019 is an indicator, it is not.


Altarum also found that, between April 2018 and April 2019, drug list price growth fell to 0.3 percent, down from 2.7 percent the year before. That information caused Altarum (and POLITICO) to reach this conclusion: “Since July 2018 we have observed exceptionally slow growth in prescription drug prices. Indeed, for these 10 months, price growth is rising at an annual rate of 0.2 percent. The closest recent period would be a growth rate of 0.4 percent for 10 months in 2013.”


As health-care policy expert Tara O’Neill Hayes explains, the April findings are in line with findings from other groups. Express Scripts’ 2018 Drug Trend Report, for example, showed “the lowest increase in drug spending in 25 years, despite an increase in utilization, because of a 0.4 percent decrease in net unit costs (after accounting for discounts and rebates) from 2016-2018.”


One other piece of data worth noting: in March and April, as it has been in the past, prescription-drug spending was a small share of total health-care spending in the United States – just 10 percent. Hospital spending is about one-third of the total, and spending on doctors and clinical services is 20 percent.