New Indicators Show Prescription Drug Spending Increased Slower than Expected in 2015

We have been hearing for years now that the pharmaceutical industry is the reason for the spike in healthcare costs, that pharmaceutical companies take advantage of “the little guy” by charging exorbitant rates for their drugs. Companies such as Turing and Valeant have not been helping the pharma industry case lately, either.

A recent brief put together by the Altarum Institute shows that prescription drug spending has actually decreased, currently standing at 6.6%, compared to the peak growth rate of 14.3% just one year ago. That same brief also separated health spending by category, finding that only 10% of all health spending in December 2015 was prescription drug spending.

The report also highlighted the fact that for the “preceding 12-month period ending December 2014, prescription drugs showed the highest growth among the major categories, at 14.3%, but are now growing at a more moderate 6.6% rate.”

Supporting this idea of a slowed rate of prescription spending, CVS Health, which manages drug benefit plans for millions of Americans, also announced that their patient spending on prescription drugs grew by only 5% last year.

Johnathan Roberts, president of CVS Caremark and executive vice president of CVS Health, believes that “the double-digit drug trend increases we were experiencing in 2014 resulted in a call to action from our clients to help them ensure their plan members could access the medications they need to stay healthy, at an affordable price.”

While there could be many possibilities as to why prescription drug spending slowed in 2015, some reasons could be that pharmacy benefit managers, such as CVS Health, have started to negotiate discounts with drug companies to help find savings for employers, insurers, and patients, and “playing favorites” with one drug maker’s medicine over another in exchange for better prices.

PhRMA has previously done research on spending when it comes to prescription drugs. They also found that “competition among brand-name medicines and aggressive tactics by insurers to negotiate prices all help to keep costs under control.” PhRMA also recognizes how important a free market and “robust innovation ecosystem” are to keep the cost of drugs down. A system that “permits the ability to recoup investment not just for the few medicines that successfully make it to market, but also for the many others that don’t.”

Last year, the highest proportion of healthcare spending went to hospital spending, which amounted to $1.05 trillion and 32% of healthcare spending. Coming in second was physician and clinical services spending, $657 billion, representing 20% of total health spending. In total, 84% of health spending in 2015 went toward spending on personal healthcare goods and services.

Interestingly enough, healthcare costs on the whole only grew by 5.9%, and according to Altarum, the increase was so low due to spending on hospitals and prescription drugs, each of which grew at less than half the rate observed in February. If this trend continues, it is likely that health spending growth will drop to more modest levels for 2016.

With the 2016 Presidential Election right around the corner and primaries happening week after week, we are sure to hear many more myths and solutions (some good, and some bad) about the cost of prescription drugs. While it is unlikely that the discussion of prescription drugs and price spikes will be going away any time soon, it is also helpful to know that the cost of prescription drugs does not seem to be rising at a fast clip, and if enough news outlets pick up on that, maybe the narrative of “evil pharma” will be dispelled for a while, giving the industry a much-needed PR break, where they can start focusing on the good that is done by industry leaders.