U.S. Spent $374 Billion on Prescription Drugs Last Year, Up 13%; Increase Largely Due To Hep C Cures and Limited Generic Competition

The U.S. healthcare system spent $373.9 billion on prescription drugs in 2014, up 13.1 percent from the year before, and the highest rate of spending growth since 2001, according to a report by IMS Institute for Healthcare Informatics.

View the full report, including IMS video commentary here.

A number of factors point to the fact that this dramatic increase is not so much a trend, but an anomaly.

“2014 was a remarkable year,” Murray Aitken, executive director of the IMS Institute. “We’re probably not going to see it again.”

Last year saw the FDA approve a near-record 42 novel medicines, including 18 for rare diseases–those that affect fewer than 200,000 Americans. Ten of the new drugs were designated as breakthrough therapies, for conditions including multiple sclerosis, various cancers, and hepatitis C.

“The availability of new hepatitis C treatments and very few products losing patent protection” account for the surge, states Aitken. “Sovaldi was the biggest drug launch in history and accounted for about $8 billion, or 2 of the 13 percent increase.” Furthermore, in 2013, patients were holding off on hep C treatments in anticipation of Gilead Sciences’ cure due out in 2014. This also added to the drastic year over year increase. Over 161,000 patients started treatment for hepatitis C in 2014, “more than four times the previous peak and nearly ten times more than in the previous year as spending on widely adopted new treatments totaled $12.3Bn,” states the IMS report.

As for patent protections, health systems save when from patent protected branded products to generics. “Typically this saves around 15-30 billion a year,” Aitken notes, and “in 2014, that number was only 12 percent.”

Another reason for the spike can be attributed to the Affordable Care Act’s impact on health coverage. Furthermore, on the Medicare side, Aitken states that the “number of Medicare Part D prescriptions reached almost $1 billion in 2014.”

The report also points out some interesting aspects related to Medicaid, which they note was the “leading driver of retail prescription growth in the first year of expanded coverage under the Affordable Care Act.”

• Overall Medicaid prescriptions increased 16.8% in 2014, accounting for 70% of the growth in retail prescription demand
• Medicaid prescriptions increased 25.4% in states that expanded Medicaid coverage, and 2.8% in states that did not expand Medicaid coverage
• Nearly a quarter of exchange plan patients and 9% of Medicaid patients may have been previously uninsured

However, while the Affordable Care Act significantly increased the number of insured, the ACA was less of a factor than expected on drug spending, accounting for only about $1 billion of the spending growth, Aitken said. He does not see the Affordable Care Act causing much of an increase in spending down the road either, as 2014 marked the greatest influx of newly insured–the amount may grow in the future, but at a much slower rate.