The concentration of prescription drug spending

Fewer and fewer drugs account for an increasingly higher share of total spending in Medicare Part D

In a new study titled “Concentration of spending and share of specialty drug spending in Medicare Part D over a 10-year period” in the Journal of Managed Care & Specialty Pharmacy(lead author Shu Niu, PhD student at the University of Florida), we showed that over the last 10 years, fewer and fewer drugs account for a larger share of prescription drug spending in the US Medicare Part D. Medicare Part D is the prescription drug benefit (coverage) for people with Medicare (generally those aged 65 and above in the US).

Increased spending over time

In the study, we descriptively analyzed spending in Part D between 2012 and 2021 for the approximately 3,500 prescription drugs covered by Part D plans. The (gross) spending in Medicare Part D increased from $106 billion in 2012 to $216 billion in 2021, i.e. growing by slightly more than 8% per year. We also tried to sort out how much of the increase was due to an increase in prescriptions (utilization) and how much was due to higher prices. The results indicate that it is due to both. The increase in prescriptions accounted for about 4% of the year-to-year increase in spending, while the increase in prices accounted for about 3.6% of the year-to-year increase in spending. The remaining increase was due to the introduction of new (often high-cost) drugs.

Concentration of spending

In 2021, the 10 drugs (out of the 3,500) with the highest spending accounted for 22% of all (gross) spending in Part D. This concentration of spending has also accelerated over the last 10 years. As seen in the figure below, the share of spending for the Top 1% of drugs increased from 31% in 2012 to 41% in 2021.

When dividing the drugs into specialty and non-specialty drugs (although we used a slightly simplified definition), a very clear pattern over time could be seen, such that the share of spending due to specialty drugs increased from about 22% in 2012 to 71% in 2021.

Summing up

The results are perhaps no surprise to people closely following the pharmaceutical industry - fewer and fewer high-cost drugs account for an increasingly large share of total spending for payers. This also shows that policy reforms such as the Inflation Reduction Act that allows CMS to negotiate prices for a few select numbers of drugs can have a (potentially) substantial impact over time, considering that spending is highly concentrated on a relatively short list of drugs.