About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

Pharmaceutical R&D and the Evolving Market for Prescription Drugs 1 (October 2009)

handle is hein.congrec/cbo10104 and id is 1 raw text is: A series ofissue summaries from the Congressional Budget Office OCTOBER 26, 2009 Pharmaceutical R&D and the Evolving Market for Prescription Drugs Investment in research and development (R&D) over the past several decades has produced a wealth of valuable new drug therapies that have made it possible to treat major illnesses that were not treated previously or were not treated as effectively. As the scope of available drug therapies expanded, spending on prescription drugs became the fastest-growing category of total spending on health care in the United States. Between 1994 and 2004, real (inflation-adjusted) spending on prescription drugs rose at an average annual rate of 11.1 percent, compared with 3.5 percent for hospital care and 4.3 percent for physicians' services. More recently, however, that growth has slowed: From 2004 to 2007, drug expenditures grew by an average of just 3.2 percent per year, slightly less than the rate of growth in overall health care spending. As a fraction of total spending on health care, spending on prescription drugs rose from 6 percent in 1994 to around 11 percent in 2004, where it has remained (see Figure 1). That slowdown in the rate of growth in spending reflects changes in both the supply of and the demand for pre- scription drugs. On the supply side, the patents for many top-selling drugs have expired, subjecting them to com- petition from cheaper generic compounds. The resulting decline in spending on those drugs has not been fully offset by added spending on new brand-name drugs because, at the same time, the rate at which new drugs are being introduced has slowed substantially. On the demand side, many health plans have sought to control the growth in their expenditures by creating stronger incentives for their enrollees to choose generic drugs or cheaper brand-name drugs. Decisions regarding pharmaceutical R&D depend largely on drug manufacturers' expectations about future reve- nues. Expectations about revenues are shaped by the con- ditions affecting the potential demand for each drug, such as the size of its market, its price, and the amount of competition expected from other drugs. The greater the expected revenue from a prospective new drug, the more willing a drugmaker will be to invest to develop it. Those decisions will help determine which drug therapies become available in the future and thus will affect future growth in health care costs. This brief describes the cur- rent state of investment in drug R&D and the factors that influence it. It also examines how various policy options to control the growth in health care costs or to expand insurance coverage could affect R&D spending. Figure 1. Spending on Prescription Drugs as a Percentage of Total Spending on Health Services and Supplies, 1980 to 2007 (Percent) 12 10 8 6 4 2 0 Il 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 Source: Congressional Budget Office based on data on spending for health services and supplies, as defined in the national health expenditure accounts, maintained by the Centers for Medicare and Medicaid Services.

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most