Projecting future drug expenditures--1999

Area of Science:

• Health Economics
• Pharmaceutical Policy

Background:

• The producer price index revealed a significant increase in drug and pharmaceutical prices in 1998.
• Prescription drug costs, in particular, experienced a substantial rise, exceeding previous annual averages.

Purpose of the Study:

• To analyze factors influencing drug costs.
• To project drug cost trends for 1999.

Main Methods:

• Analysis of producer price index data for drugs and pharmaceuticals.
• Review of predictions from group purchasing organizations regarding 1999 drug price increases.
• Examination of managed health care coverage rate predictions and their stated reasons.

Main Results:

• Drug and pharmaceutical prices increased by 10.2% in the first 10 months of 1998, a sharp rise from 2.1% in 1997.
• Prescription drug prices increased by an average of 17.4% in the first 10 months of 1998.
• Group purchasing organizations forecast 3-8% price increases for various drug categories in 1999.
• Managed care organizations anticipate 10-12% or higher increases in coverage rates for 1999, citing prescription drug costs.

Conclusions:

• The trend of increasing drug costs observed in 1998 is expected to continue into 1999.
• Rising prescription drug expenses are a primary driver of increased healthcare and managed care rates.
• Previous predictions of moderating drug cost increases were not realized, suggesting a sustained period of higher drug prices.