Health Spending Growth Falls on Flood of Generics

Health-care spending in the U.S. grew the least since 1998, driven by the slowest rise in retail drug purchases in more than four decades. Payments for everything from doctor visits and hospital construction to home-health care increased 6.1 percent to $2.24 trillion, according to a government report today in the journal Health Affairs. Americans paid $228 billion for prescription medications, a 4.9 percent rise from 2006. Cheaper copies of heart and blood-pressure drugs such as Merck & Co.’s Zocor, Pfizer Inc.’s Norvasc and Bristol-Myers Squibb Co.’s Pravachol became available in 2006 and 2007. Generic drugs accounted for 67 percent of retail prescription sales in 2007, up from 63 percent the preceding year, according to the report. As the number of top-selling brands facing generic competition tails off, drug spending may rebound, said Paul B. Ginsburg, a health-policy analyst in Washington. “It’s a very happy short-term development for those people who pay for medical care,” said Ginsburg, president of the Center for Studying Health System Change, a Washington-based policy-research group, in an interview. “But it will be used up in a few years.” Spending grew faster than personal incomes, which rose 5.4 percent in 2007, and the U.S. economy, which expanded 2 percent. Payments to hospitals, doctors and clinics, and home providers also outpaced the overall increase. Consumers paid more for health-care out of pocket. Health-care spending amounted to $7,421 a person in 2007, or 16.2 percent of gross domestic product, the broadest measure of the U.S. economy. That compares with 16 percent a year earlier. Expanded Drug Benefit Drug spending had increased 8.6 percent in 2006, when Medicare added a $41 billion drug benefit for elderly and disabled Americans. Annual growth in drug spending peaked in 1999 at 18.8 percent. Demand for prescriptions also was curbed by the U.S. Food and Drug Administration’s increased use of so-called black-box warnings, strongly worded cautions for possible side effects and hazards, the report found. In 2007, the FDA slapped 68 prescription drugs with black- box warnings, up from 58 the year before and 21 in 2003, said Micah Hartman, a Medicare statistician and lead author of the Health Affairs article. He said he couldn’t estimate the financial impact of the warnings. Statisticians drew information for the spending report from the Census Bureau, IMS Health Inc., the American Hospital Association, along with other sources, Hartman said. Total costs included construction of health-care institutions such as hospitals, Hartman said. Figures weren’t adjusted for inflation. Other “blockbuster” drugs that lost patent protection and met generic competition during the period were Pfizer’s Zoloft, an antidepressant; GlaxoSmithKline Plc’s sinus spray Flonase; and Sanofi-Aventis SA’s insomnia drug Ambien, Hartman said. Through 2006, $47 billion worth of prescription drugs lost patent protection. Two-Thirds of Sales Generic drugs, costing 30 to 80 percent less than their patented equivalents, have also reined in the prices that can be charged by brand-name drugmakers, Hartman said. The fastest-growing health service cited in the report was home care. Helped by increasing claims to Medicare, the health program for the elderly, and Medicaid, the program for the poor, home-health expenditures jumped 11 percent to $59 billion. Inpatient and outpatient hospital care rose 7.3 percent to $697 billion. Payments to doctors and clinics increased 6.5 percent to $479 billion. Consumers shelled out $269 billion in out-of-pocket costs in 2007, an increase of 5.3 percent, compared with a 3.3 percent rise the year before, and they picked up a growing share of the premiums for coverage provided by employers. Of the $736 billion in premiums for employer-sponsored health insurance, companies’ share shrunk to 72.9 percent from 73.1 percent the previous year.