Drug Spending Mirrors Spending on Other Health Care Services

Spending on prescription drugs is not an anomaly but rather follows similar patterns as other health care services. Policy proposals that focus narrowly on constraining drug spending are disregarding other drivers of health care spending.

Despite the role of biopharmaceutical innovation in advancing patient life expectancy and quality of life, recent policy proposals seeking to curb rising health care spending in the United States have predominantly focused on pharmaceutical costs. But drug spending is not the sole driver of increasing U.S. health spending. 

A new study published in the Journal of Managed Care and Specialty Pharmacy by researchers from the National Pharmaceutical Council (NPC) and the IQVIA Institute for Human Data Science shows that spending on prescription drugs follows similar patterns as spending on other health care services, with a small subset of the sickest patients responsible for the majority of spending.  

The researchers analyzed 2018 claims data for a large commercially insured population to determine how prescription drug spending and utilization patterns compare with other health care services, including inpatient care (e.g., hospitals, psychiatric facilities, rehab), ambulatory care (e.g., outpatient hospitals, surgical centers, urgent care), office visits (e.g., doctor office/clinic), and other services (e.g., home health, labs).    

In examining how health spending is concentrated within the patient population, the study found that the top 5% of health care consumers accounted for more than 55% of all commercial health care expenditures. Breaking this down by service type, the top 5% of health care consumers accounted for nearly 85% of inpatient expenditures, 63.7% of prescription drug expenditures and 50.8% of ambulatory expenditures.

The consistent spending patterns we see across health care services indicate the need for a systemwide approach to curb rising health spending.

Michael Ciarametaro NPC Vice President of Research

The findings have two main policy implications. First, spending on prescription drug therapies is not an anomaly but rather mirrors spending on other health care services. As such, policy proposals that focus narrowly on constraining spending on prescription drugs, particularly specialty drug therapies, are disregarding other drivers of health care spending. 

Second, a significant portion of health care spending is concentrated in a small population. Therefore, managing rising health spending requires a deeper examination of the value of the care being delivered to this subset of high-intensity patients to ensure better care delivery and more efficacious interventions.  

“Research has shown that medicines provide significant value to patients and are a good investment for the health system,” said NPC Vice President of Research Michael Ciarametaro, lead author on the study. “Policies that aim to arbitrarily limit the concentration of drug spending within specialty drugs, such as through caps on specialty drug prices or revocation of patent exclusivity based on costs, lack requisite nuance and may unintentionally limit patient access to needed, high-value treatments.” 

In fact, previous NPC research showed that capping spending at the pharmaceutical level, compared to aggregate budget caps, could lead to worse health outcomes for eight of the most commonly occurring conditions, including ischemic heart disease, asthma and rheumatoid arthritis.  

“The consistent spending patterns we see across health care services indicate the need for a systemwide approach to curb rising health spending,” Ciarametaro said.  

JMCP Drug Spending Mirrors Health Care Spending

Read the Key Findings

This NPC study finds that spending on prescription drugs follows similar patterns as spending on other health care services, with a small subset of the sickest patients responsible for the majority of spending.  

Read key findings.