New Government Report: Pharmaceutical R&D and the Evolving Market for Prescription Drugs (ISBN: 1437925057)

Pharmaceutical R&D and the Evolving Market for Prescription Drugs (ISBN: 1437925057)
By David Austen and Colia Baker
(Paperback, 8 pages, 2009, $10.00)

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 U.S. Between 1994 and 2004, real (inflation-adjusted) spending on prescription drugs rose at an average annual rate of 11.1%, compared with 3.5% for hospital care and 4.3% for physicians’ services.

More recently, however, that growth has slowed: From 2004 to 2007, drug expenditures grew by an average of just 3.2% 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% in 1994 to around 11% in 2004, where it has remained.

That slowdown in the rate of growth in spending reflects changes in both the supply of and the demand for prescription 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 report describes the current 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. Figures.

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