From 1993 to 1997, the overwhelming majority of the increases in expenditures on prescription drugs were attributable to increased volume, mix, and availability of pharmaceutical products. In 1997, these factors accounted for more than 80 percent of the growth in prescription drug expenditures. A leading explanation for the sharp growth in drug expenditures is that prescription drugs are a substitute for other forms of health care. While it is difficult to determine the extent to which this substitution occurs, various studies have associated cost savings with the use of pharmaceutical products in treating specific diseases. Prescription drug plans offered by employers are likely to undergo changes to ensure that only the most efficacious drugs are covered.
Anecdotal evidence suggests that copayments for prescriptions are going to increase.
Some health plans are including prescription drug costs in their capitated payments to physicians. Furthermore, prescription drug plans are expected to use formularies more aggressively. Inevitably, this translated to significantly more spending for pharmaceutical products by the elderly. While prescription drug prices are increasing sharply, these products are also becoming more important in the treatment of many diseases. Consequently, both employers and policymakers must carefully balance the design and cost of a drug benefit so that innovation can continue and the benefit can remain affordable and effective.