Growth in US health care spending decelerated to just 6.9% in 2005, which is the lowest level since 1999, according to new data released by the Centers for Medicare & Medicaid Services. In comparison, growth rates had been 7.2% in 2004 and 8.1% in 2003.

Health care expenditures reached almost $2.0 trillion in 2005, or $6,697 per person, up from $6,322 in 2004. The continued spending decline was the result of two factors - the after-effects of the USA’s recession in 2001 and the sixth consecutive year of lower growth in prescription drug sales, which rose just 5.8% in 2005, compared to 8.6% in 2004 and 10.6% in 2003.

US retail prescription drug sales growth for last year had been impacted heavily by higher use of generics and a “dramatic” decline in prescription drug spending in the Medicaid programme, reports the CMS’ Office of the Actuary. Factors affecting market development in recent years have been the proliferation of tiered-co-payment benefit plans, which slow the use of brand-named drugs, and a decrease in the number of new drug introductions, the Office reported.

The CMS study supports earlier findings in a report by PricewaterhouseCoopers, which noted a direct relationship between consumers’ enrolment in multi-tiered drug formularies and a slower rate of growth of prescription drug spending, commented Karen Ignagni, chief executive of America’s Health Insurance Plans (AHIP), which represents the health insurance industry.

The CMS also reports that total US spending on prescription drugs reached $200.7 billion in 2005, compared to $189.7 billion in 2004. Private sources of funding, which include out-of-pocket and private health insurance spending, accounted for 73% of prescription drug spending in the year and grew just 6%, compared to 7.2% in 2004, it adds.

The prices of branded medicines increased by an average of 6% in 2005, although US prescription drug prices were up 3.5% overall, around the same level as in the previous year.

Medicare spending for prescription drugs grew 19.7% in 2005, outpacing overall Medicare growth, but it represented only a 1.2% share of total Medicare spending and the figures do not include expenditures associated with the full prescription drug benefit, which did not begin until January 1, 2006, the agency explains.

Medicare drug plan cost estimates fall

Meantime, new independent estimates have reduced the costs of the Medicare prescription drug benefit for the fiscal 2008 budget cycle by 30% ($189 billion) below the official projections made when the benefit was created in 2003, US Health and Human Services Secretary Mike Leavitt has said this week.

The new estimates also reduce the costs of the drug plan during 2007-2016 to $964 billion, from the total of $1.07 trillion which the Administration had projected only last July. Sec Leavitt, who has in the past criticised demands for legislation which would require the government to negotiate prices with manufacturers for drugs covered by the Medicare benefit, said that the new estimates showed that such moves would not be needed.

“Our new estimates provide clear evidence that consumer choice is working,” said Sec Leavitt. “Government interference will result in fewer choices and less consumer satisfaction. Actuaries have told us that government interference will not lead to lower drug prices either,” he noted.

Drug plans have “produced greater-than-expected savings by competing for Medicare beneficiaries and aggressively negotiating with drug companies,” added the CMS’ acting Administrator, Leslie Norwalk.

Nevertheless, during the US mid-term elections last November, the Democrats had promised fast action on the issue of negotiated drug prices and, when they took control of Congress last week, The Medicare Prescription Drug Price Negotiation Act of 2007 (HR 4) was a top priority; it was introduced last Friday, and the House is expected to vote this week on the bill, and to pass it, but problems are likely when it reaches the Senate. Tomorrow, the Senate Finance Committee is set to conduct a hearing entitled Prescription Drug Pricing and Negotiation: An Overview and Economic Perspectives for the Medicare Prescription Drug Benefit and. at the beginning of this week, Committee chairman Senator Chuck Grassley gave an indication of what might be ahead.

Discussing the CMS’ new, lowered estimates of the programme’s costs, Sen Grassley, a Republican who is opposed to government involvement in drug pricing, told the Senate: “harnessing the power of competition among plans gives the Medicare programme, beneficiaries and taxpayers access to better negotiators than anything the government could do on its own.”

One thing that has been learnt, he said, is that “the government is not actually very good at figuring out what it should pay for drugs;” in contrast, the new CMS estimates show that one area that is working very well is the negotiating power of private Medicare drug plans, which are securing lower drug prices for the programme and have shown their ability to hold down costs. For the top 25 drugs used by seniors, the Medicare prescription drug plans have been able to negotiate prices that are, on average, 35% lower than the average cash price at retail pharmacies, he said.

The programme is working, Sen Grassley told the Senate, and added: “if it ain’t broke, then don’t fix it.”

- Meantime, it was reported this week that the US Food and Drug Administration approved just 18 new drugs in 2006, the same figure as in 2005 and well down on the average of 26 new Molecular Entities for each of the previous six years. 1999 was the high point of recent years, with 35 approvals.

The agency has not yet released the number of New Drug Applications and approvals for last year, but the manufacturers receiving the highest number of new drugs approved were Merck & Co and Pfizer, with two each.

By Lynne Taylor