Health Care Increases as a Result of Demand
for Prescription Drugs

University of Michigan researchers reported on July 13, 2001, that the primary reason for increases in pharmaceutical spending of managed care plans' is the voracious appetite by consumers for prescription medications, particularly new products.

The study demonstrates that largely as a result of higher consumption of new and existing drugs, managed care plans saw sharp increases in prescription costs over a two-year period - up 34.8 percent for HMO's (health maintenance organizations) and 30.7 percent for PPO’s (preferred provider organizations). Also, almost exclusively due to prescriptions for new drugs, traditional fee-for-service plans experienced a 17.3 percent increase during the same period.

Dr. Michael Chernew, an associate professor of health management and policy and lead author, said that greater employee demand for prescription medications, as opposed to "simple price increases in existing drugs," is driving much of the trend. He said that this fact alone "makes the prices of newly introduced products that much more important."

The study used 1996 to 1998 prescription cost data from one unidentified national employer with 44,228 hourly and 75,433 salaried employees and reported its findings in the July issue of the American Journal of Managed Care.

In an accompanying editorial, Dr. Bernard S. Bloom of the University of Pennsylvania wrote that the findings debunk 'the conventional wisdom' about the causes of increasing drug expenditures.

In the editorial, Dr. Bloom stated, "The authors demonstrated clearly that recent increases of drug expenditures were due overwhelmingly to expansion in volume and changing mix...of prescriptions written and filled. Price increases accounted for minor effects."

The author added that future research should focus on whether higher utilization is warranted for specific clinical areas and patient populations since utilization, not price, accounted for much of the cost growth.

Since the University of Michigan researchers did not have data on 'case-mix' differences among the plans, they could not say whether one type of health plan did a better job than another in controlling drug expenditures. However, the researchers noted, to explain the wide variation in spending growth, those differences would have to be 'substantial.'

The scientists suggested that rising drug expenditures may not be all bad. They wrote, "pharmaceutical spending may reduce spending on other types of health care services and, more importantly, may improve health outcomes."

References: "Demand fuels sharp rise in health plan drug cost," Reuters Health, July 13, 2001.


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