Skip to Content

PhRMA says basic math proves prescription drugs are small portion of health care costs

WASHINGTON, D.C., Jan. 8, 2003 -- A just-released Center for Medicare and Medicaid Services study shows prescription drug costs are only 10 cents in the nation's total health care dollar, and just one-sixth of last year's increase in health care spending, according to the Pharmaceutical Research and Manufacturers of America (PhRMA).

Other health care goods and services accounted for nearly 5 times the increase in health care costs of prescription drugs.

"We're still seeing unsubstantiated claims that drugs are making health care unaffordable, but my son's 7th grade math class would conclude from the CMS study that prescription drugs are a very small portion of total health care costs," said PhRMA's Senior Vice President for Policy and Research, Rick Smith. "It's basic addition, subtraction and division. Prescription drugs are only 10 cents of the overall health care dollar and it is ludicrous to suggest that they're responsible for most of the $115 billion increase in health care costs."

The new government study shows that Americans spent $141 billion on drugs in 2001, out of $1.424 trillion on all health care. Thus: $141 billion / $1.424 trillion = 9.9% of all health care spending is for drugs.

Likewise, the study shows that health care spending increased by $115 billion between 2000 and 2001. Of that, only $19 billion was accounted for by drugs. Thus: $19 billion / $115 billion = 16.6% -- or just 1/6th -- of the overall increase in health care costs.

Notably, that 10 cents covers much more than brand name drugs; it also pays for generic drugs and the distribution of pharmaceuticals.

The 10 cents of each health care dollar going to pharmaceuticals funds extraordinary advances in treating disease. In 2002, the pharmaceutical research industry invested over $30 billion in developing new and better medicines. And in 2000 and 2001 alone, just a few of the important advances brought to patients include:

  • A first-in-class drug approved in 2001 to combat HIV, and a new protease inhibitor approved in 2000 that is the only such drug approved for use in very young children.
  • The first in a new class of drugs for type 2 diabetes, approved in 2000.
  • Two new drugs to treat leukemia - a breakthrough treatment for chronic myeloid leukemia, and another providing a new option for patients with no other approved therapeutic options for the treatment of the most prevalent form of adult leukemia.
  • For the first time in 35 years, the first antibiotic in a completely new class and a new drug used to treat severe sepsis were approved.

"As the debate surrounding health care costs continues, we urge policy makers to consider the value pharmaceuticals bring to the health care system in terms of healing patients and saving lives for just 10 cents out of the health care dollar. It's time to move away from the rhetoric and look at the economic realities," Smith added.

PhRMA represents the country's leading research-based pharmaceutical and biotechnology companies, which are devoted to inventing medicines that allow patients to live longer, healthier, and more productive lives. PhRMA companies, which invested more than $30 billion in 2001 in discovering and developing new medicines, are leading the way in the search for new cures.

Source: PhRMA

Posted: January 2003