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Medicare Helps Push Drug Spending Up
By Christopher Lee, Washington Post
January 8, 2008
Spending on prescription drugs rose briskly in 2006 as the Medicare drug benefit kicked in and the government's share of expenditures for medicines surged, according to a federal study to be released today. Overall, health-care spending in the United States continued its climb, rising 6.7 percent in 2006 to reach $2.1 trillion, or $7,026 per person. The 6.5 percent increase in 2005 was the smallest jump since 1999.
Health-care spending accounted for 16 percent of the gross domestic product in 2006.
Prescription drug purchases in the United States rose to $216.7 billion, up 8.5 percent from 2005, federal economists from the Centers for Medicare and Medicaid Services calculated in an annual report published in the journal Health Affairs.
Of that, more than a third, or 34 percent, was paid for by public-sector sources including Medicare and Medicaid, the Departments of Defense and Veterans Affairs, and state and local hospital subsidies, the report found. In 2005, the year before the Medicare drug benefit took effect, the government accounted for 24 percent of drug purchases.
The primary driver of the higher drug spending was increased consumption, not price increases, the economists said. The $41 billion spent on Medicare's drug benefit, known as Part D, helped boost overall Medicare spending to $401.3 billion in 2006, up from $338 billion the year before.
"The source of payment for prescription drugs has changed a lot because of Part D," said Richard S. Foster, Medicare's chief actuary, who helped present the report. "Those are big changes. But the overall cost of prescription drugs in the U.S. has changed very little as a result of Part D."
A separate study by researchers at the London School of Hygiene and Tropical Medicine provided further evidence that the United States often falls short on health outcomes despite spending more per capita on health care than any other country. That research, also published today in Health Affairs, found that the United States ranked worst among 19 countries in the number of deaths that could have been prevented through better access to timely and effective health care.
Had the United States performed as well as the top three countries -- France, Japan and Australia -- it would have seen about 101,000 fewer deaths per year from conditions such as hypertension, appendicitis, tuberculosis, and colon and cervical cancers.
"While no country provides a perfect model of care, there are many lessons to be learned from the strategies at work abroad," said a statement by Karen Davis, president of the Commonwealth Fund, the foundation that funded the study.
The report by the Centers for Medicare and Medicaid Services found that consumers' out-of-pocket health spending continued to grow, rising 3.8 percent in 2006. It also documented an 8.8 percent growth in administrative costs that year, partly because of the private insurance plans set up to deliver the Part D benefit and to a 25 percent increase in enrollment in private Medicare plans known as Medicare Advantage. In 2005, the increase in administrative costs was 3.6 percent.
For the first time, Medicaid, which serves the poor, saw spending decline, falling 0.9 percent to $310.6 billion in 2006, the report found. Analysts said that was largely because drug costs for some Medicaid recipients were shifted to Medicare under the new drug benefit.
The Medicare drug benefit has been a political football, with Democrats criticizing it as a costly boon to private insurers and Republicans praising it as a model of market-based competition. House Democrats passed legislation last year that would have allowed the federal government to negotiate drug prices under the program, but the measure, opposed by President Bush and many Republicans, died in the Senate. Foster, the Medicare actuary, said the cost of the drug benefit remains below initial government estimates. He also noted that the Part D drug price discounts of 5 to 6 percent negotiated by private plans have tended to be far lower than the government-mandated discounts of 18 percent or more under Medicaid.
"Clearly it's not the same level as with Medicaid, where you have an element of mandated rebates -- not negotiated, but mandated," Foster said.
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