Health Care Expenditure Trends

 

The health care expenditure in the United States of America has increased continuously at high rates, and per capita health care expenditure has consistently surpassed overall economic growth.1 In the year 2017, the United States spent about $3.5 trillion, or 18 percent of GDP, on health expenditures which amounted to more than twice the average among developed countries. Of that $3.5 trillion, $1.5 trillion, is directly or indirectly financed by the federal government. By 2028, the projected estimates will rise to $2.9 trillion, or 9.7 percent of the economy.

Medicare (7.4 percent per year) and Medicaid (5.8 percent per year) are both the major contributors to the increase in the rate of national health expenditure growth. Both these trends reflect the impact of an aging population on the national expenditure. There are various drivers responsible for increase in health expenditures but in recent years, the high price of prescription drugs has been heavily examined as a key contributor to the increase in national healthcare expenditure.

Prescription drug spending:

The United States’ per capita spending on prescription medications was $858 in 2015, more than double the average of $400 among 19 advanced industrialized nations. Among the major sectors of healthcare, spending growth is projected to be fastest for prescription drugs, averaging 6.3 percent for 2017-2026. This is due in part to faster projected drug price growth, particularly by the end of the period, influenced by trends in relatively costlier specialty drugs. 

Major Legislation That Shapes Today’s Pharmaceutical Markets

In 1983 and 1984, Congress enacted two laws that led to development and innovation of new drugs and created competitive market through a generic drug approval process. 

The Drug Price Competition and Patent Term Restoration Act—commonly known as the Hatch-Waxman Act was the first law which extended patent terms and provided marketing exclusivity for certain categories of drugs thereby enabling the manufacturers to recoup the investments on development and research.

The second law, the Orphan Drug Act, provisions for several incentives like research and development tax credits and seven-year market exclusivity for the development of drugs for rare diseases and conditions which affect less than 200,000 people.

In 1992, the Accelerated Approval (AA) was created by Food and Drug Administration (FDA) regulation to mitigate the needs of the AIDS epidemic. FDA enables expedited approvals for drugs of clinical significance. Using AA, the FDA may grant approval for a new drug that offers a significant benefit compared to available therapies for serious medical conditions. It was codified by the FDA Safety and Innovation Act (FDASIA) in 2012.

In 2010, Biologics Price Competition and Innovation Act (BPCIA) under the Accountable Care Act was designed to encourage competition in the market for biologic drugs and provisioned for 12 years exclusivity for biologic therapeutic drugs. 

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