Report: Growth in health-care spending stays flat

Posted: January 12, 2014

What's good for some can be bad for others, and that maxim was demonstrated again last week with the release of the annual National Health Expenditures analysis.

Though America spent just shy of $2.8 trillion in 2012 on health-care spending, the rate of growth was essentially flat, continuing a four-year trend, according to the study by the federal government's Office of the Actuary, Centers for Medicare and Medicaid Services, published in  the journal Health Affairs. That is the longest period of slow or no growth in the 53-year history of the analysis.

On the surface, at least, that might please people paying for health care who have seemingly become used to rising costs.

But some of the numbers were another unpleasant reminder of a recent trend for big-name pharmaceutical companies making original medicine: Several blockbuster drugs that were widely used and cost a lot were dropped in favor of cheaper generic medicine. The high cost had been facilitated by market exclusivity born of patent protection.

Instead of Pfizer's dominating the market for cholesterol medication with Lipitor - the world's best-selling pill, with 2006 revenue of $12.9 billion - generic drugmakers took a share of the revenue with cheaper versions. In the 2011-12 time frame, similar scenarios applied to Merck with its asthma medicine Singulair and Bristol-Myers Squibb with its blood thinner Plavix.

"The combined gross sales of these three drugs were $19.1 billion in 2011," wrote Adam J. Fein, who runs Pembroke Consulting Inc., in Philadelphia, and analyzed the report on his blog, Drug Channels.

While rate of growth continued to climb for hospital care and physician services, and the overall national growth rate increased slightly, to 3.7 percent, rate for retail pharmaceuticals declined from 2.5 percent in 2011 to 0.4 percent in 2012.

The lead author of the federal agency's analysis, Anne Martin, called the shift "historical," but also a "onetime" occurrence, during a conference-call interview with her colleagues from their office in Baltimore. "It has everything to do with generics," Martin said. "That is the story."

Trouble for the big-name companies that depend on the sales of patented medicines can mean problems for their employees, and those ill effects can and sometimes do resonate in the Philadelphia region.

Pfizer is based in New York, but has a big operation in Collegeville. Merck is based in Whitehouse Station, N.J., but employs about 11,000 people in Montgomery County, mainly at its large operations in West Point and Upper Gwynedd. Bristol-Myers Squibb is based in New York and has several facilities in New Jersey.

But generic manufacturers are headquartered or have big operations in this area, too. Some drug companies stay on one side of the generic-branded divide, but others work both sides. Teva Pharmaceutical Industries Ltd., is based in Israel, but it has its Americas headquarters in Montgomery County. It built its business on generic drugs, but its highest revenue drug is the patent-protected multiple sclerosis drug Copaxone. But if Copaxone loses patent protection in May (court decisions are pending), generic competitors will offer cheaper versions. Those numbers might be reflected in future government analysis.

"As 2014 witnesses extensive changes in the health landscape, the role of generic medicines in providing patient savings and access to affordable care is critical and unquestionable," Ralph G. Neas, president and CEO of the Generic Pharmaceutical Association, said in a statement. "A large proportion of patient and consumer savings is attributable to the increased use of generic medicines, and a decrease in overall spending on prescription drugs."

215-854-4506 @phillypharma

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