Health Care Costs and Financing

Increased use of prescription medicines is changing health care spending patterns

The 1 percent of Americans who spend the most on medical care experienced a 4 percent drop in their share of the nation's overall health care spending from 1996 to 2003 from 28 percent to 24 percent, according to a new study by researchers for the Agency for Healthcare Research and Quality (AHRQ).

In general, the concentration of health care spending in the United States has shifted partly because of rapid growth in prescription drug spending and slower growth in spending for hospital inpatient care. Between 1996 and 2003, inflation-adjusted spending on prescription medicines increased by 125 percent, while spending for inpatient hospital care grew by only 11 percent. As a result, spending for prescription medicine accounted for 20 percent of overall medical care expenditures in 2003, up from 12 percent in 1996. During the same period, the share of spending for inpatient hospital care dropped from 39 percent to 34 percent.

The patients in the top spending brackets tended to have chronic illnesses, such as heart disease and cancer, which often require costly hospital inpatient care. The declines were apparent for people of all ages and for people younger than age 65 with both public and private insurance. Previous studies showed that their share of medical spending remained relatively stable for the three decades prior to 1996.

According to researchers, Samuel H. Zuvekas, Ph.D., and Joel Cohen, Ph.D., encouraging patients to be sensitive to drug prices, such as through health plan tiered formularies or high deductibles, may increase the potential for cost savings, and Medicare's Part D drug benefit will probably increase prescription drug spending. However, the impact of Part D on the concentration of health care spending is not clear at this point.

For details, see "Prescription Drug Spending and the Changing Concentration of Health Care Expenditures," by Drs. Zuvekas and Cohen in the January-February 2007 Health Affairs, 26(1), pp. 249-257. Reprints (AHRQ Publication No. 07-R031) are available from the AHRQ Publications Clearinghouse.

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