Who Paid For Prescription Drugs In 2011?

Yesterday, the boffins at the Centers for Medicare and Medicaid Services (CMS) released the 2011 National Health Expenditure data. Savor the wonkiness by checking out this Health Affairs article: National Health Spending In 2011: Overall Growth Remains Low, But Some Payers And Services Show Signs Of Acceleration (free download).

Total U.S. expenditures on retail prescription drugs were $263.0 billion, a 2.9% annual increase vs. 2010. Prescription drug expenditures were the slowest growing part of the U.S. health care system, which grew by a historically low 3.9%. (See Exhibit 2 of the Health Affairs article.)

There are a lot of moving parts in the latest numbers, so I encourage you to read the full article. A few highlights:

• Consumers’ share of U.S. drug expenditures dropped to a new low.
• Medicare Part D was the fastest-growing payer, in part because healthcare reform increased spending on brand-name drugs.
• 2010’s prescription spending estimate was revised downward.

Read on for a detailed review at the latest prescription spending numbers, along with a bonus look at why overall healthcare spending will start accelerating. Despite the legislation's name, healthcare reform seems unlikely to provide affordable care.

THE DATA

Economists at the Centers for Medicare & Medicaid Services (CMS) publish annual estimates of U.S. National Health Expenditures (NHE), including prescription drugs sold through outpatient retail, mail, and specialty pharmacies. You can savor the latest expenditure data at CMS’ National Health Expenditure Historical Data page.

Expenditure (spending) data differ from that of pharmacy revenues, manufacturer sales, or provider purchases. NHE totals are net of manufacturer rebates, so the reported figures are lower than pharmacies’ prescription revenues.

The data also do not measure total U.S. spending on prescription drugs, because these data exclude an indeterminate amount of inpatient spending on pharmaceuticals. Unfortunately, there is no way to figure out spending for inpatient drugs in other NHE categories because spending is bundled with inpatient procedure fees. For example, some portion of "Hospital care" includes an unknown amount of drug spending. For a concise and semi-wonky explanation, see National Health Expenditures Accounts: Methodology Paper, 2011 (page 13).

WHO PAID FOR PRESCRIPTION DRUGS IN 2011?

The chart below shows the payment source for outpatient prescription drugs (share of dollars) in 2011, the most recent year available. The two primary Center for Medicare and Medicaid Services (CMS) programs—Medicare and Medicaid—paid for 32% of total retail drug spending in 2011. The private health-insurance share, which was 46.5% in 2011, peaked in 2001 at 51% and has been declining ever since.

The second chart shows the year-over-year growth rates in expenditures, by payer. In 2011, Medicare was again the fastest-growing payer, by a wide margin.

THE NEWS BEHIND THE NUMBERS

Here are five observations about the 2011 prescription drug spending growth patterns.

• For the second year, spending on outpatient prescription drugs grew more slowly than overall national health expenditures. In 2011, prescription drug spending grew by 2.9%, or 100 basis points less than the 3.9% growth in overall expenditures. The gap was even larger in 2010, when with prescription drug spending was 350 basis points less than national health spending.

• Medicare was the fastest-growing payer of drug expenditures. In 2011, Part D enrollment grew by 5.4%, accelerating from 3.9% in 2010. Note that the Medicare data combine Part D drug expenditures (about 88% of Medicare drug expenditures) with non-part D drug expenditures such as Medicare Advantage drugs and some Part B spending in traditional Medicare fee-for-service. The growth rate of Medicare Part D prescription drugs was 7.3%, while the chart above shows the total Medicare growth rate of 8.1%.
  
  CMS suggests that the Affordable Care Act also boosted Part D spending on brand-name drugs. In 2011, the PPACA required manufacturers of drugs covered by Medicare Part D to participate in the Medicare coverage gap discount program, which provides 50% discounts on brand name drugs to enrollees who reach the coverage gap. Brand-name drug utilization increased, because Part D beneficiaries saved a total of $2.3 billion in 2011.

• Healthcare reform reduced Medicaid spending. Medicaid spending declined by 3.0% in 2011, following a 1.4% drop in 2010. The PPACA increased the Medicaid unit rebate amount and extended rebates to Medicaid managed care plans. Federal expenditures on Medicaid shrank by 18.1% in 2011, while state and local expenditures on Medicaid grew by 28.3%.

• Consumers paid even less. In 2011, consumers’ out-of-pocket expenses—cash-pay prescriptions plus copayments and coinsurance—shrank to an historical low 17% of total U.S. retail drug expenditures. Consumers’ expenses were about $50 billion in both 2008 and 2009, but were only $45 billion in 2011. Reasons for this decline include reduced utilization, generic substitution, and expanded insurance coverage of young adults due to the PPACA. (FYI, an estimated 3 million additional young adults (age 19-25) gained coverage as a result of the PPACA.)

• Spending is below projections…again. CMS hates when I mention it, but the data were significantly revised vs. last year’s report. Last June, CMS forecast that 2011’s spending would be $269.2 billion. The new data peg total 2011 spending at $263.0 billion, or $6.2 billion less than projected just six months ago. In addition, 2010’s growth rate in prescription drug spending has been reduced to 0.4% (vs. the originally-reported 1.2% growth rate. Unfortunately, this seems to be a recurring trend, as I noted three years go in Drug Forecasts: Oops!...They Missed It Again.

PRICE VS. UTILIZATION

This year’s analysis includes this intriguing chart highlighting the underlying drivers of overall healthcare spending growth.

The CMS economists write:

“Health expenditure growth can be broken down into several broad factors or categories: some that directly reflect changes in prices, such as economywide inflation and additional medical-specific inflation; and others not involving changes in prices, such as population changes and shifts in the age and sex mix of the population, as well as other nonprice factors. Other nonprice factors reflect a wide range of phenomena—such as utilization, intensity (that is, complexity of services), and investment—that may be influenced by larger economic conditions.”

A quick glance at the chart shows that prices continued to march forward, even as growth due to non-price factors decelerated due to the recession. Guess what will happen as the economy improves, healthcare reform boosts utilization, and little is done to control prices?

Yes, that's right. You should be terrified beyond the capacity for rational thought.