Tuesday, January 11, 2011

Who Paid for Prescription Drugs in 2009?

The boffins at the Centers for Medicare & Medicaid Services (CMS) just released the 2009 computations of National Health Expenditures (NHE), including the latest data for prescription drugs.

Total NHE grew by only 4.0%, the slowest rate in five decades and below the 5.7% growth rate predicted for 2009 by CMS only last February. Alas, the slowdown occurred because of the economy, not healthcare reform. As Carl Mercurio of the Corporate Research group wittily notes in his blog: To Slow Healthcare Spending Growth, Destroy the Economy.

In 2009, total NHE for retail prescription drugs were $249.9 billion in 2009, up 5.3% versus 2008. A few intriguing observations from my number-crunching:
  • Retail prescription drug prices, as measured by the Consumer Price Index for prescription drugs, rose 3.4% in 2009. Thus, real (inflation-adjusted) growth in drug expenditures was only 1.9%.
  • Public funds continue to crowd out private payers.
  • Medicare drug expenditures grew by 8.8%, while private health insurance grew by 5.1%.
  • Consumer out-of-pocket payments grew by only 2.2%.
  • Hooray! CMS' prediction of 5.2% growth from last February was pretty close to the actual rate, breaking their multi-year streak of poor forecasts. (See Drug Forecasts: Oops!...They Missed It Again.)
Read on for details and charts. Note that the NHE totals are net of manufacturer rebates, so the reported figures are lower than prescription sales of retail pharmacies. Policy wonks should check out the methodological note at the bottom for details.

Please note that the discussion of the Medicare growth rate was updated on January 13 based on comments from CMS. See below for details.


Here are links the original data sources:
As a reminder, NHE does NOT measure total U.S. spending on prescription drugs. Sales through outpatient retail channels are only about 75% of total pharmaceutical manufacturer sales. Unfortunately, there is no way to figure out spending for inpatient drugs in other NHE categories because spending is bundled with inpatient procedure fees. For example, some portion of "Hospital care" (and other NHE categories) also include an unknown amount of drug spending.

CMS does report Medicare Part B outpatient spending, but only retrospectively and with a 2 to 3 year lag. See Exhibit 40 of The 2010-11 Economic Report on Retail and Specialty Pharmacies for Medicare Part B spending on office-administered drugs from 1997 to 2008.


The chart below shows the payment source for outpatient prescription drugs (share of dollars) in 2009. Public funds—Medicare Part D, Medicaid and Children’s Health Insurance Program (CHIP)—continue to crowd out both private and out-of-pocket payments. Public funds paid for 35% of total retail drug spending in 2009. The private health-insurance share peaked in 2001 at 51% and has been declining ever since.

In the second chart, I show the year-over-year growth rates by payer. Surprisingly, Medicare was the fastest-growing payer in 2009. The Medicaid and CHIP programs grew by 6.4%, with the Federal government paying more and states paying less. Federal expenditures of Medicaid (Title XIX) grew by 18.3% in 2009, while state and local expenditures on Medicaid shrunk by 13%. Federal CHIP (Title XIX and XXI) grew by 18.5%.

UPDATE: The NHE Medicare data combine Part D drug expenditures (88% of Medicare drug expenditures) with non-part D drug expenditures such as Medicare Advantage drugs and some Part B spending in traditional Medicare fee-for-service. The growth rate of Medicare Part D prescription drugs was 8.2% and growth rate for non-Part D medicare prescription drugs was 13.0%. The chart above shows the total Medicare growth rate of 8.8%.

Medicare CMS will update its forecasts in February. Stay tuned for my annual slice-and-dice of the latest forecast!


For the first time, CMS economists have released sufficient details on how they arrive at the NHE data. See National Health Expenditures Accounts: Definitions, Sources, and Methods, 2009. Here’s my summary along with some previously unpublished details provided to me by CMS economists.

1) Start with total revenues from prescriptions at retailers (NAICS 44-45) based on the 2007 Economic Census. The relevant Product and Service Code is 20161 (“Prescriptions”). In 2007, total retail prescription drug sales were $245.5 billion.

2) Make the following adjustments:
  • Add in spending for government-run mail order facilities (DOD, VA) using IMS Drug Distribution Database (DDD) report for mail order sales
  • Add in sales taxes for IL (1%) using IMS Retail Prescription Method of Payment Report by State
  • Add in Nonemployer receipts for sales of prescription drugs using Census of Retail Trade, Nonemployer receipts-Total Drug Stores
  • Adjust for the proportion of sales that are for prescriptions, using data from National Community Pharmacists Association
  • Subtract sales to nursing homes by pharmacies based on IMS Drug Distribution Database (DDD), National Class of Trade Report
  • Subtract total Private, Medicare, and Medicaid rebates
3) In a large spreadsheet, beat together retail sales, adjustments, eggs, white sugar and two teaspoons vanilla. Mix in flour, baking soda, salt, hopes, dreams, estimates, interpolations, and cinnamon. Pour into pre-greased Health Affairs pan.

Serve and Enjoy!

FYI, the adjustments reduce 2007 retail prescription sales by $15.3 billion to $230.2 billion in NHE for 2007. CMS uses IMS data to interpolate and extrapolate between the Census years (years ending in -2 and -7).

1 comment:

  1. News about the payments of prescription drugs, it rarely increase hoping that the government should do anything about the prices because not all people can afford to buy medicine because it is expensive.