U.S. Prescription Drug Spending Is on the Rise

March 8, 2016 4:00 p.m. ET

Prescription drug spending in the U.S. is rising and is projected to continue to climb faster than overall health spending, federal officials said Tuesday.

Drug spending rose an estimated sharp 12.6% in 2014 after years of unusually slow growth—it rose about 2% a year between 2008 and 2012.

The increase is largely due to higher-priced specialty medications and the fact that millions of people have gained insurance coverage through the Affordable Care Act, according to a report released Tuesday by the Department of Health and Human Services.

Cumulatively from 2013 to 2018, prescription drug spending is projected to rise by an average of 7.3% annually, according to the report. That is below the sharp rise seen in 2014 but still higher than before 2013.

The rise in prescription drug spending has spurred inquiries from lawmakers and complaints from consumers. Congressional committees have probed factors behind the rise, as insurers and employers pass on more of the financial burden to consumers through higher out-of-pocket costs. The increase in drug spending since 2010 can largely be traced to people taking more prescriptions, higher-priced medications and economic inflation, according to the report.

Spending on specialty drugs is a major driver. These high-cost prescriptions for treatments such as hepatitis C, cancer and multiple sclerosis can run $100,000 or more a year. Presidential candidates such as Republican front-runner Donald Trump and Democratic front-runner Hillary Clinton have criticized drugmakers and the rise in drug costs.

The Obama administration has sought information on pricing from pharmaceutical companies and has been probing ways to help consumers keep drug costs in check. In an October survey by the Kaiser Family Foundation, 77% of Americans said making sure high-cost medications for chronic conditions are affordable should be a top health-care priority for Congress and the president.

“The costs associated with some of these therapies may place a financial strain on patients who might face high out-of-pocket costs even if they are insured,” according to the report. Spending on prescription drugs also puts pressure on federal budgets, driving up spending for programs such as Medicare.

About a decade ago, prescription spending slowed as more generic products came on the market and fewer new blockbuster drugs were introduced.

Total drug spending is expected to hit $535 billion in 2018, which is almost 17% of all personal health-care spending.

For patients with insurance purchased privately or provided by an employer, out-of-pocket costs vary widely, from a small copay to thousands of dollars. The Affordable Care Act capped commercially insured patients’ out-of-pocket costs for all care, including drugs. The 2016 cap is $6,850.