In January 2022, the Congressional Budget Office (CBO) released a new report on prescription drugs, with a focus on nationwide spending on prescription drugs from 1980 to 2018. Spending on prescription drugs has increased with great speed since the mid-1990s, based on an increase in the number of drugs that reached “blockbuster” status by generating at least $1 billion in sales annually. Those blockbuster drugs often treat conditions that impact a large segment of the population, such as high cholesterol or high blood pressure.
Interestingly, despite what we may hear on the news to the contrary, the report found that after decades of increases, per capita spending on prescription drugs began to level off in the mid-2000s (with the exception of a pronounced increased between 2013 and 2015). Since then, spending has continued to fall as a percentage of total spending on health care services and supplies, even though consumers’ use of prescription drugs has increased over time. That slowed growth (as well as the increase in use of prescription drugs) is linked to the growing arsenal of generic drugs.
From 2009 to 2018, the use of generic drugs jumped from 75% to 90% of all prescriptions throughout the country.
The report also found that the average net price of a prescription (the price of a prescription after factoring in discounts and rebates provided by manufacturers to private insurers and federal programs) fell from $57 in 2009 to $50 in 2018 in the Medicare Part D program and from $63 to $48 in the Medicaid program. From 2009 to 2018, the average price of a prescription for a generic drug fell from $22 to $17 in Medicare Part D and from $27 to $23 in Medicaid. This trend is another example of the increased use of lower-cost generic drugs.
Highlighting the driver generic drugs has on the average cost of drug prices, the average net price of brand-name prescription drugs increased significantly over that same time period: from $149 to $353 in Medicare Part D and from $147 to $218 in Medicaid. These increases are likely due to higher launch prices of new brand-name drugs and price increases of prescription drugs already on the market. Meanwhile, average prices for generic drugs in both Medicare Part D and Medicaid fell during that time frame. The report theorizes that nationwide changes in average prices likely followed similar patterns.
“One reasonable interpretation of these data is that we have a targeted drug price problem, not a general one,” said Ben Ippolito, of the American Enterprise Institute.
Limitations
While this report is incredibly supportive of generic drugs and the impact they have on reducing costs for patients nationwide, the analysis only focused on drugs sold in pharmacies. This means it did not focus on drugs that are administered in hospitals or doctors’ offices, which tend to be more expensive.
The report also noted that generics may not continue to hold the share of total prescriptions in the future, or even grow in the same way in the future. This is, in part, due to the nature of newer brand-name drugs that are becoming more costly to manufacture and may be more challenging to replicate.