Three facts about health care spending

There is increasing talk about making changes to our health care system to lower costs for patients and address misaligned incentives. These are important conversations that could lead to meaningful improvements, but only if policymakers take a holistic approach to address all the health care drivers. Far too often, there is a singular focus on prescription medicines, ignoring the other parts of the supply chain that are key drivers of U.S. health care spending. Here are three key facts to help provide context to the conversation:

Spending on medicines is a small and stable share of total health care spending. 

• Medicine spending overall is only 14% of health care spending and is expected to stay that way for the next 10 years.
• The government’s inflation data show that overall medicine prices at the pharmacy counter grew less than 3% in the past year.
• Further, when you look at the prices of brand medicines specifically, net prices (meaning prices after accounting for rebates, discounts and other payments) grew by only 1% in 2021, on average, below or in line with the rate of inflation for the fifth year in a row.
• However, this trend doesn’t always lead to lower costs for patients. Take insulin, for example. Rebates, discounts, and other payments from manufacturers lower the cost of commonly-used insulins by 84% on average, but insurers often don’t share those savings with patients at the pharmacy counter. As a result, patients can end up paying more for insulin than their insurance company and pharmacy benefit manager (PBM).

Insurers and their PBMs are siphoning money out of the system and into their pockets while driving up costs for patients.

• More than half of every dollar spent on brand medicines goes to entities, including PBMs and payers, that didn’t research or develop the medicine.
• Today, three PBMs control 80% of the market and use that market leverage to increase profits. For example, PBMs can charge fees that are tied to the price of medicines. This has allowed their profits to soar in recent years and experts warn it may “misalign incentives in a way that ultimately increases patients’ costs.”
• Rather than using the revenue they generate to improve insurance coverage for patients most in need, some PBMs and insurers shift costs to patients in the form of high deductibles and coinsurance or exclude coverage of certain generics or biosimilars that could lead to lower costs for patients.  

Hospitals continue to be the primary driver of health care spending.

• Hospitals account for nearly a third (31%) of every dollar spent on health care in the United States, and hospital spending is on track to increase by about 5% per year, through at least 2030.
• Between 2016 and 2021, hospital spending increased 4.5 times more than retail prescription drug spending. And the share of total hospital spending attributable to medicines decreased from 3.7% to 3.1% between 2015 and 2020.
• When it comes to medicines specifically, hospitals mark prices up, on average, by nearly 500%. In fact, a recent analysis found costs for certain medicines were over $8,000 more, on average, when administered in hospitals than when distributed through a specialty pharmacy between 2019 and 2021.

The facts matter when talking about health care spending. As policymakers continue discussions on ways to address high costs and abuse in the system, they need to take a look at all the stakeholders involved.

Learn more at PhRMA.org/Cost.