Changes in the Growth of Prescription Drug Expenditures in the U.S

Background: Recent analyses of large regional and national databases have helped to identify a number of factors that are associated with the recent decline in the growth of health spending overall and prescription drug expenditures in the U.S. These studies have offered divergent views of the relative importance of factors such as changes in health system characteristics, generic penetration of previously branded medications, changes in insurance coverage, changes in economic growth, changes health resource utilization and price and changes in disease prevalence to recent decline in the growth of health spending overall. Despite the importance of prescription drug spending in overall health care expenditures, few studies have delved comprehensively into the extent to which changes in these factors have been driving the decline in the growth of prescription drug expenditures. To the extent that prescription drugs represent an increasing component of overall health care expenditures and play an important role in health outcomes, longevity and quality of life, new and detailed analysis is needed to help inform policymakers about the factors that may have contributed to the slowdown in the growth of prescription drug expenditures.

Research Objective: In this study we will use nationally representative data to present estimates of trends in prescription drug expenditures. In addition, we will use decomposition methods to quantify changes in the growth of prescription drug expenditures that are due to differences in observable micro- and macro-level variables and differences unexplained by these observable factors.

Data and Methods: Our data will be drawn, primarily, from the 2000-2011 Medical Expenditure Panel Survey (MEPS). We will link the MEPS data to various secondary data sources at state and county levels, exploiting the rich array of demographic, socioeconomic, health and geographic variables in the MEPS and other secondary data sources. We will examine trends in prescription drug expenditures and trends in selected micro- and macro-level variables that are assumed to contribute to changes in prescription drug spending. We will also examine the effects of socio-demographic, economic, health, geographic characteristics as well as aggregate level factors on changes in the growth of prescription drug expenditures. Finally, we will use regression based decomposition methods, first developed by Blinder (1973) and Oaxaca (1973), to quantify the changes in the growth of prescription drug expenditures that are due to differences in observable factors and differences unexplained by observable factors. We will also test the sensitivity of our regression models to alternative specifications.

Potential Policy Implications: Despite recent declines in the growth of health expenditures, the high cost of prescription drugs remains a serious concern for individuals, the public and policymakers. This study will contributes to the literature by presenting detailed estimates of prescription drug expenditure trends and the contributions of different factors to changes in the growth of prescription drug expenditures using nationally representative data. This study will also help inform policymakers about the potential future path of prescription drugs expenditures and what additional measures may be available to help bend the cost curve for prescription drug expenditures.