Decline in pharmaceutical spending growth a major factor in the health spending slowdown

Although pharmaceutical spending growth has shown signs of picking back up in 2014, it had slowed considerably during the post-recession period (2009-2013) and was one of the primary contributors to the recent health spending slowdown, according to a recent Health Affairs blog post by Charles Roehrig. The analysis uses National Health Expenditure Account (NHEA) data to decompose changes in health spending growth between 2005-2007 and 2009-2013.

The average annual growth rate in health spending dropped by 2.6 percentage points between the two periods. Most of the decline – accounting for 1.6 percentage points – was lower economy-wide inflation.

In addition to pharmaceutical spending growth, which declined 3.0 percentage points from pre-to-post recession, the other main contributors to the health spending slowdown (after adjusting for inflation) were Medicare-funded health services, which saw a 1.2 percentage point decline in growth, and spending on structures (e.g., hospital buildings), which saw a 10 percentage point decline in growth.

“The largest contributor, accounting for nearly 30 percent of the 1-percentage point slowdown, was prescription drugs. By implication, if the real growth rate of spending on prescription drugs had not fallen, the overall growth in real health spending would have declined by about 0.7 percentage points. The combination of structures, public health, and dental care explain 36 percent of the slowdown. Medicare spending on health care services explains about 15 percent.”

Charles Roehrig, Health Affairs

During the pre-recession period spending on prescription drugs experienced temporary growth due to the implementation of Medicare Part D. Additionally, in the post-recession period patent expiries caused a temporary decline in prescription spending. The trend in prescription drug spending has changed again and in 2014 the biggest jump in drug spending took place, with an unprecedented 30.9% increase in spending on specialty medicines, and price increases for commonly used generic drugs.

Another finding of note is that Medicare spending growth declined more than overall health spending, mostly due to slower growth for home health and nursing home care.

After adjusting for the effects of lower inflation and temporary factors, the author attributes the “the greatest share” of the remaining decline in health spending growth to the recession.