With the rising costs of prescriptions and other issues relating to implementation of the new Medicare drug benefit, it is no wonder that policymakers are considering new approaches to addressing drug costs. And while prescription drug spending is a relatively small fraction of national health care spending, it is one of the fastest growing components.
Prescription drug expenditures are affected by three key factors: number of prescriptions dispensed, types of prescriptions, and manufacturer price increases. Of those three, the largest contributor to drug expenditures is the number of prescriptions dispensed.
According to the Kaiser Family Foundation's Prescription Drug Trends report, from 1993 to 2003, the number of prescriptions purchased increased 70 percent (from 2 billion to 3.4 billion), compared to a U.S. population growth of only 13 percent. The average number of prescriptions per capita increased from 7.8 to 11.8.
Retail prices, which reflect price changes for existing drugs and the introduction of newer, higher-priced drugs, increased an average of 7.4 percent a year during that same time period. The cost of manufacturing newer, higher-priced brand name drugs, in terms of research and development (R&D), increased from $12.7 billion in 1993 to an estimated $33.2 billion for 2003.
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