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Drug Spending Runs Up Health Care Tab

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By KEVIN FREKING, The Associated Press

Published: January 8, 2008

WASHINGTON - Seniors and the disabled flocked to the pharmacy counter in 2006 with their new Medicare drug cards, fueling a 6.7 percent increase in health spending, the federal government reported Monday.

In most other areas of health care, there was a welcome slowdown in spending. It still cost more to go to the hospital or doctor, but the increase was not as great as in 2005.

The $2.1 trillion spent on health care in 2006 came to an average of $7,026 a person. Health care represents 16.1 percent of the economy.

The increase in drug spending occurred even as consumers relied more on generic drugs and as prices remained relatively stable for many brand-names. Nearly two out of every three prescriptions filled were generics, which helped restrain drug expenditures.

That restraint was offset by the new Medicare benefit. Those with insurance are more likely to access the health care system. Under the drug benefit, people who once had to cut back on medicine had the means to fill more prescriptions in 2006.

Also, many of the poorest beneficiaries were moved from Medicaid to Medicare, where private plans administer the drug benefit. Those private plans failed to negotiate discounts as large as those the states got. Officials said the discounts drug makers were required to give states typically cut costs by about 30 percent. Meanwhile, the private plans typically negotiated discounts of 5 percent to 10 percent.

Spending on prescription drugs rose 8.5 percent in the drug benefit's first year, compared with 5.8 percent the year before.

Health care makes up a growing share of the nation's economy, a trend many analysts worry will eventually harm the economy.

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