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Projecting future drug expenditures2007

JAMES M. HOFFMAN, NILAY D. SHAH, LEE C. VERMEULEN, GLEN T. SCHUMOCK, PENNY GRIM, ROBERT J. HUNKLER, AND KARRIE M. HONTZ

otal prescription drug expenditures in the United States increased by 5.5% from 2004 to 2005, with total spending rising from $239 billion to $252 billion.1 This represents a signicant moderation of the growth of prescription drug expenditures, compared with the 9.2% increase in 2004 and the 12.3% increase in 2003 (Figure 1). While this is a signicant decrease in the growth rate compared with the 19.7% increase observed in 1999, various factors, such as the implementation of the Medicare Part D drug benet in 2006, the emphasis on prescription drug safety, and the introduction of several high-profile generic drugs (e.g., simvastatin, clopidogrel), continue to prompt widespread attention to prescription drug costs. This article projects drug expenditures by sector (outpatient prescriptions, clinics, and hospitals) for calendar year 2007. It discusses factors related to drug utilization

Purpose. Drug expenditure trends in 2005 and 2006, projected drug expenditures for 2007, and factors likely to inuence drug costs are discussed. Summary. Various factors are likely to aect drug costs, including drug prices, drugs in development, and generic drugs. In 2005, there was a continued moderation of the increase in drug expenditures. Total prescription drug expenditures increased by 5.5% from 2004 to 2005, with total spending rising from $239 billion to $252 billion. Through the rst nine months of 2006, hospital drug expenditures increased by only 3% compared with 2005. This moderation of the growth of prescription drug expenditures can be attributed to three major factors: availability of major prescription drugs in generic form, continued increase in cost sharing for employees in employer-sponsored health plans, and

decreased use due to safety concerns. It is expected that expenditures in 2007 will be inuenced by similar factors, with few costly new products reaching the market, increased concern over product safety reducing the use of older agents and slowing the diusion of newer agents that do reach the market, and several important patent expirations, leading to slower growth in expenditures. Conclusion. In 2007, we project a 57% increase in drug expenditures in outpatient settings, a 1416% increase in clinics, and a 46% increase in hospitals. Index terms: Costs; Drug use; Drugs; Economics; Health-benet programs; Patents; Prescriptions; Pricing; Product development; Toxicity Am J Health-Syst Pharm. 2007; 64:298314

and drug costs, including drugs in development, the diffusion of approved drugs, and factors affecting generic drug availability and pricing.

Other trends in health care likely to affect drug expenditures are briey reviewed. The authors intent is that this information will aid health care

JAMES M. HOFFMAN, PHARM.D., M.S., is Medication Outcomes Coordinator, Pharmaceutical Department, St. Jude Childrens Research Hospital, Memphis, TN, and Assistant Professor, Department of Clinical Pharmacy, College of Pharmacy, University of Tennessee, Memphis. NILAY D. SHAH, PH.D., B.S.PHARM., is Assistant Professor of Health Services Research, Division of Health Care Policy and Research, Mayo Clinic College of Medicine, Rochester, MN. LEE C. VERMEULEN, B.S.PHARM., M.S., FCCP, is Director, Center for Drug Policy, University of Wisconsin Hospital and Clinics, Madison, and Clinical Associate Professor, University of Wisconsin Madison School of Pharmacy, Madison. GLEN T. SCHUMOCK, PHARM.D., M.B.A., FCCP, is Associate Professor and Director, Center for Pharmacoeconomic Research, College of Pharmacy, University of IllinoisChicago, Chicago. PENNY GRIM, M.B.A., is Lead Business Analyst, Supplier Management; ROBERT J. HUNKLER, M.B.A., is Director, Professional Relations, and KARRIE M. HONTZ, M.B.A., is Senior Direc-

tor, Business Development, IMS Health, Plymouth Meeting, PA. Address correspondence to Mr. Vermeulen at the University of Wisconsin Hospital and Clinics, 600 Highland Avenue, M/C 9475, Madison, WI 53792 (lc.vermeulen@hosp.wisc.edu). Mr. Vermeulen is a member of speakers bureaus or receives research funding from Pzer and Amgen. Dr. Schumock has consulted for or received research funding from Abbott, TAP, Scios, GlaxoSmithKline, Novartis, and Pzer. The ASHP Section of Pharmacy Practice Managers provided support for the development of this article. Doug Scheckelhoff, M.S., and several anonymous reviewers are acknowledged for their contributions. Copyright 2007, American Society of Health-System Pharmacists, Inc. All rights reserved. 1079-2082/07/0201-0298$06.00. DOI 10.2146/ajhp060545

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Figure 1. Annual growth in drug expenditures, 19982006. Diamonds = total expenditures, squares = expenditures for nonfederal hospitals, triangles = expenditures for clinics.

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professionals in determining how future changes will affect drug-related expenditures in their practice. Some data in this article may not fully reect events that have occurred after September 2006, when the article was nalized for publication. General prescription drug trends Figure 1 illustrates the growth of total prescription drug expenditures in the United States, as well as the growth in prescription drug expenditures for hospitals and clinics. Growth in expenditures has stabilized over the past two to three years for total prescription drug expenditures and clinic expenditures, while growth in prescription drug expenditures in hospitals has continued to decrease. The growth rate for total drug expenditures in 2005 was lower than the 8% increase in prescription drug expenditures projected by the Centers for Medicare and Medicaid Services (CMS).2 This slowdown in growth of expenditures can be attributed to three major factors: availability of major prescription drugs in generic form, continued increase in cost sharing for employees in employer-sponsored health plans, and decreased use of key drugs due to safety concerns (e.g., cyclooxygenase-2 [COX-2]-selective nonsteroidal antiinammatory drugs [NSAIDs]). Recent publications have also noted a decrease in the growth of prescription drug expenditures and a higher out-of-pocket burden for consumers. Smith et al.3 estimated an 8.2% increase in retail prescription drug expenditures in 2004 and noted that it was the rst time the growth was less than 10% in over 10 years. In the past, prescription drug expenditures grew at a rate approximately twice that of overall health care expenditures, but current growth rates for prescription drugs and overall health care expenditures are now comparable. In a report on employer-sponsored health insurance benefits, Gabel et al.4 found
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that out-of-pocket expenditures for prescription drugs have continued to increase through a variety of mechanisms, including more common use of multitiered copayment benefit designs, coinsurance, and separate deductibles for prescription drugs. Borger et al.5 projected an annual increase of 8.08.4% for prescription drug expenditures between 2007 and 2015. They expect much of the growth in prescription drug expenditures to be driven by increased prescription drug use overall and increased use of specialty pharmaceuticals. Further, they do not expect the Medicare drug benet to have a major effect on overall prescription drug expenditures after 2006, projecting that Medicare will pay for 27% of all prescription drug spending in 2006, after paying for only 2% in 2005. Initial evaluations suggest that the rebates and discounts that Medicare will receive for prescription drugs will be almost twice the initial projection (27% versus 15%), resulting in lower than expected total prescription drug expenditures. Hospital expenditures continue to be the single largest component of health care costs, accounting for 30.4% of national health care expenditures, despite continued decreases in inpatient length of stay.2 Increases in outpatient service utilization slowed the rate of inpatient growth in the 1990s. Inpatient hospital utilization can be measured by inpatient days per 1000 population and admissions per 1000 population.6 In 2004, hospital inpatient days decreased slightly from 676 days per 1000 population in 2003 to 673 days per 1000 population in 2004, but hospital admissions remained unchanged compared with 2003 (119 inpatient admissions per 1000 population). However, inpatient expenditures per patient day increased in 2004 by 5.8% to $1450 per patient day. In a recent study, Strunk et al.7 estimated that the aging population will increase the use of hospital ser-

vices at a rate of 0.74% over the next 10 years and that the highest growth in hospital utilization will be for orthopedic procedures, cardiovascular services, and respiratory conditions. Technology growth, including the development of new pharmaceuticals, will also continue to contribute to increased hospital expenditures; thus, hospital drug expenditures are expected to continue to be an important target of cost-containment efforts.8 The fastest growing category of prescription drug expenditures was biological agents, which grew by 17.2% between 2004 and 2005 to $32.8 billion.1 There was a 3.8% increase in the number of outpatient prescriptions filled between 2004 and 2005, a signicant increase compared with the 2.3% increase seen in 2004 and the 2.6% increase in 2003. Growth in the number of prescriptions lled continues to decelerate, after growing by 9% in 1999.9 Summary of 2006 forecast In our forecast of drug expenditures for 2006, we predicted a growth rate of 57% for hospital drug expenditures, 911% for clinic-administered drug expenditures, and 79% for retail drug expenditures.10 During the rst nine months of 2006, the actual growth rate for hospital drug expenditures was 2.5%, signicantly lower than our projection. This lower growth was driven by several factors, such as earlier-than-expected generic availability of agents in two major drug classes: antiinfectives (ceftriaxone) and anesthetics (sevourane). These trends are discussed later in this article. Actual drug expenditures for clinics increased by 18.2% in the rst nine months of 2006 (compared with the same time period in 2005), after increasing by 22% between 2002 and 2003. This growth is higher than our projection of 911%. This higher growth rate for drug expenditures in clinics can largely be attributed to

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greater-than-expected increases in both the price and use of oncology agents, specically the monoclonal antibodies bevacizumab, cetuximab, and trastuzumab. Drug expenditures for outpatient and ambulatory care settings (including mail order) increased by only 6.6% in the rst nine months of 2006.1 This growth is slightly lower than our forecast of 79% for 2006 in this setting. Factors that contributed to the deceleration of outpatient prescription drug expenditure growth include signicant patent expirations in 2004 and 2005 (e.g., azithromycin, metformin, gabapentin, ciprooxacin, tramadol) and reductions in the use of several products for which safety issues have emerged (e.g., hormone replacement therapy, COX-2-selective NSAIDs, selective-serotonin reuptake inhibitors in children). As previously mentioned, higher prescription drug cost sharing for consumers remains an important factor, resulting in a smaller increase in outpatient drug expenditures in 2006. Drugs in development To understand and plan for drug expenditures, it remains important to monitor and evaluate drugs in development. Previously, we published more extensive guidance on how to consider the potential inuence of new drugs on an organizations nancial planning for drug expenditures.11 Briey, it is important for an organization to rst determine if a new drug is relevant to the organizations patient population. New drugs that are innovative therapies to treat diseases that were previously untreatable universally translate into higher drug costs. However, in some situations (e.g., when me-too agents are approved), newly marketed drugs can be priced significantly lower than existing drugs.12 Finally, a drug that enters the market and replaces an existing therapy may increase, decrease, or have no effect on drug expenditures.

The substantial investment required for drug development and the time required for clinical trials are often implicated as two of the primary reasons for the high cost of many medications. One widely cited estimate of the cost of drug development, published in 2003, suggested that the cost to successfully develop and market a single new drug exceeded $800 million.13 However, a more recent estimate suggested that the cost of new drug development varies from $500 million to over $2 billion.14 Further, a recent analysis of drug development times suggested that the time required for clinical trials from 1992 to 2000 remained stable, suggesting that clinical trial time did not contribute to increases in prescription drug costs.15 When considering the inuence of drugs in development on drug expenditures, it is useful to review indicators of the drug pipeline size, the time it takes for new drugs to receive approved labeling from the Food and Drug Administration (FDA), and specic drugs that could receive approval in 2007. Indicators used to estimate the size of the drug pipeline include the number of new molecular entities (NMEs) approved by FDA, the number of new drug applications (NDAs) led with FDA, and the number of investigational new drug (IND) applications led and active with FDA. Approvals and applications. Only 20 novel medications received FDAapproved labeling in 2005 (18 NMEs and two new biologics),16 down from 36 approved in 2004 but similar to the number of approvals in 2003 and 2002 (21 and 17, respectively). As in 2004, the new drugs approved in 2005 are not likely to be widely used or result in substantial drug expenditures, since 7 of the 20 approved in 2005 were either me-too drugs or orphan drugs.17 However, it is important to note that while orphan drugs seldom have a widespread inuence on drug expenditures, if the orphan

drug is indicated to treat a condition commonly treated at a particular hospital, it may have a pronounced inuence on drug expenditures at that institution. Indicators of the early-stage drug pipeline for 2005 remained consistent with 2004.17 FDA received 116 NDAs in 2005, similar to the 115 received in 2004. A total of 637 commercial INDs, including therapeutic biologics, were filed in 2005, up slightly from the 621 led in 2004. Finally, the total number of active commercial INDs (including therapeutic biologics) increased from 4827 in 2004 to 5023 in 2005. The number of recent approvals has been modest and mostly consists of specialized drugs. Indicators of the early-stage drug pipeline suggest it is growing at a slow rate. By comparing the number of NDAs in recent years with the approval rate in the mid 1990s, when as many as 53 novel medications received approval in one year, it is apparent that the limited growth of the late-stage drug pipeline has contributed to the moderation in drug expenditures. Approval time. Although approval time for new drugs was widely expected to increase in the wake of safety concerns, mean approval time actually decreased to 14.4 months in 2005, compared with 18.7 months in 2004 and 17.1 months in 2003.18 However, 75% of the NMEs approved received priority review, which contributed to the decrease in mean approval time. When examining approval times by application type (priority versus standard), it is evident that approval time has remained consistent. In 2005, median total approval time for priority reviews was 6 months, the same amount of time as in 2004, and median total approval time for standard applications decreased slightly from 24.7 months in 2004 to 23 months in 2005.16 Potential approvals. Selected drugs expected to receive FDAapproved labeling by the end of 2006
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Table 1.

Selected Drugs and Biologics Expected To Be Approved by FDA between October 2006 and December 2007a
Drug
Indiplon Rimonabant (Acomplia) Nebivolol Runamide (Xilep) Garenoxacin Sitaxsentan (Thelin) Sipuleucel-T (Provenge) CERA (continuous erythropoietin receptor activator) Lapatinib (Tykerb) Vildagliptin (Galvus) Parathyroid hormone (Preos) Alvimopan (Entereg) Dalbavancin (Zeven) Ambrisentan Certolizumab (Cimzia) Satraplatin Faropenem medoxomil Temsirolimus

Manufacturer
Pzer Sano-Aventis Mylan Laboratories Eisai Schering-Plough Encysive Pharmaceuticals Dendreon Roche

Indication(s)
Insomnia Antismoking, antiobesity Hypertension Antiepileptic Broad-spectrum quinolone antibiotic Pulmonary artery hypertension Prostate cancer Anemia

Route
Oral Oral Oral Oral Oral Oral Injectable Injectable

Expected Approval Date

4th quarter 2006 4th quarter 2006 4th quarter 2006 1st quarter 2007 1st quarter 2007 1st quarter 2007 2nd quarter 2007 2nd quarter 2007

GlaxoSmithKline Novartis NPS Pharmaceuticals Adolor/GlaxoSmithKline Pzer Myogen UCB Pharma Spectrum Pharmaceuticals Replidyne/Forest Laboratories Wyeth

Vigabatrin (Sabril) Tazarotene (Tazoral) Taribavirin (Viramidine)

a b

Ovation Pharmaceuticals Allergan Valeant Pharmaceuticals

Breast cancer Diabetes Osteoporosis Postoperative ileus Gram-positive infections (including MRSA)b Pulmonary arterial hypertension Rheumatoid arthritis, Crohns disease Prostate cancer Community-acquired pneumonia, sinusitis Breast cancer, renal cell carcinoma, mantle cell lymphoma Anticonvulsant Psoriasis Hepatitis C

Oral Oral Injectable Oral Injectable Oral Injectable Oral Oral Oral

2nd quarter 2007 2nd quarter 2007 2nd quarter 2007 3rd quarter 2007 3rd quarter 2007 3rd quarter 2007 3rd quarter 2007 3rd quarter 2007 3rd quarter 2007 3rd quarter 2007

Oral Oral Oral

4th quarter 2007 4th quarter 2007 4th quarter 2007

Sources: Medications in Development Database (MinDD) and University of Wisconsin Hospital and Clinics. MRSA = methicillin-resistant Staphylococcus aureus.

and 2007 are listed in Table 1. Specic drugs that could have an especially important inuence on hospital and clinic drug expenditures include alvimopan and a new erythropoietin therapy. Alvimopan (Entereg, GlaxoSmithKline/Adolor) is an oral opioid antagonist with specicity for the gastrointestinal tract. If approved, alvimopan would be the rst drug indicated for the treatment of postoperative ileus. In a randomized, placebo-controlled trial of patients undergoing abdominal surgery, alvimopan reduced the median time to hospital discharge
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by almost 24 hours.19 Therefore, it has been suggested that the reduction in the length of hospital stay and other resource savings would outweigh the cost of therapy.20 FDA deemed the drug approvable in 2005 but required additional efcacy data before granting nal approval.21 It appeared this requirement would be met by an ongoing clinical trial, and the manufacturer released preliminary positive results from this study in 2006.22 In November 2006, FDA issued another approvable letter for alvimopan, but the agency requested further safety data from an ongoing

trial and a risk-management plan.23 If approved, substantial demand for this drug could exist, and this drug could represent new and possibly significant drug expenditures for hospital pharmacies. Erythropoietin products for the treatment of anemia have consistently been the top drug expenditure for hospitals and clinics. Driven by recent increases in darbepoetin expenditures, overall expenditures for this class continue to grow (Figure 2). The introduction of a new product in this class could substantially alter the market for these drugs, and a

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Figure 2. Quarterly expenditures for erythropoietin products. Squares = darbepoetin, diamonds = epoetin alfa, circles = total erythropoietin products.

pegylated epoetin product, which is commonly referred to as CERA, or continuous erythropoietin receptor activator, is under development.24,25 The initial development of CERA has focused on use in patients with chronic kidney disease (CKD), and its efcacy in this patient population appears similar to epoetin and darbepoetin.26 An application for approval of CERA in the United States was led in April 2006, but patent challenges are expected, which may delay its introduction. However, the manufacturer maintains that the product is different from existing erythropoietin therapies, and it was successful in an initial patent challenge.27 Additional litigation is possible, but if the manufacturer of CERA continues to prevail in patent disputes, the prod-

uct could reach the market by the middle of 2007. In addition to CERA, other anemia therapies for cancer and CKD, including a small molecule for oral administration, may become available over the next three to ve years, which would further change and expand the market for erythropoietin products.24 Diusion of recently approved drugs The diffusion of new drugs and other innovations that become widely accepted typically follows a sigmoid-shaped curve.28 The initial use of a new drug is often slow, but as familiarity and experience with the drug expand, use increases rapidly until the drug is widely used, and then growth stabilizes. Therefore, in

the rst several years that a drug is available, it may not necessarily have an appreciable influence on drug expenditures; as the drugs use grows, the new drug could have important nancial implications. While this typical diffusion pattern has occurred with some recently approved drugs, a different diffusion pattern has emerged over the past several years. Concerns regarding the safety of newly approved medications and heightened prescriber sensitivity to the high cost of many new medications have delayed the initial diffusion of many products after initial approval. Unlike previous years, 2006 was relatively quiet in terms of media attention to the emergence of new drug-safety concerns. However, a
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careful review of recent literature indicates that safety concerns continue for recently approved therapies and that those concerns may have a direct impact on the diffusion of the medications involved. For example, the link between dysglycemias and therapy with the fluoroquinolone gatifloxacin was further elucidated,29,30 and, in 2006, the manufacturer discontinued the product.31 Another example is the reports of severe and sometimes fatal hepatotoxicity with the ketolide antibiotic telithromycin, which was approved in 2004.32,33 This drug remains on the market, but FDA strengthened hepatotoxicity warnings in the products labeling.34 The heart failure drug nesiritide (Natrecor, Scios) is an example of a high-cost and widely used therapy whose diffusion has been limited by safety concerns. Two systematic reviews published in 2005 showed a risk of worsening renal function and mortality within 30 days of therapy in patients who received nesiritide.35,36 These new data have continued to limit the use of nesiritide (Figure 3). Based on expenditures, the use of nesiritide has decreased such that the amount used in the second quarter of 2006 was less than the amount used in the last quarter of 2002, which was during the drugs rst full year on the market. Despite the dramatic decrease in the use of nesiritide, it is important to remain vigilant regarding the use of this drug. The manufacturer is planning an extensive 7000-patient study that will include renal function and mortality endpoints, and enrollment is expected to begin in early 2007.37,38 Positive study results would likely increase use of this drug. Antifungals continue to be a top expenditure for hospitals, and expenditures for these drugs, particularly voriconazole and caspofungin, continue to increase (Figure 4). However, the antifungal market is changing quickly and becoming
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more competitive, particularly with the introduction of micafungin and anidulafungin.39,40 The introduction of ranibizumab (Lucentis, Genentech) in late 2006 raised a particularly difcult policy challenge. 41 The product, a fragment of bevacizumab (Avastin, Genentech), holds FDA approval for the treatment of wet macular degeneration. During the nal years of ranibizumab development, many ophthalmologists began using small inexpensive doses of bevacizumab with positive results (the cost of those small doses is under $50). One dose of ranibizumab exceeds $2000 but holds the marginal advantage of both positive placebo-controlled trial data and FDA approval.42 The National Eye Institute has called for a head-to-head trial comparing bevacizumab and ranibizumab. In the meantime, hospitals must decide whether to allow the off-label use of a product that has quickly become an accepted practice or pay the higher price for a product that has no compelling data differentiating it from other active treatment modalities available to treat the disease.43 Careful evaluation of reimbursement for these agents will also be critical. Generic drugs The prompt availability and subsequent extensive use of generic formulations of widely used brandname drugs can dramatically reduce national and individual health system drug expenditures. Recently, the release of rst-time generics for drugs with substantial expenditures has been an important reason for moderation in the increase in drug costs. Key generic introductions over the past several years include drugs primarily used in ambulatory care settings (e.g., uoxetine, metformin, omeprazole, gabapentin) and drugs frequently used in clinic and inpatient settings (e.g., milrinone, uconazole, carboplatin).

In 2006, this trend continued when drugs relevant to both ambulatory care and other settings lost patent protection. For example, a generic formulation of simvastatin has become available, and the serotoninreceptor antagonist ondansetron is expected to lose patent protection before the end of 2006. Ondansetron has consistently been leading drug expenditures for hospitals and clinics. It was among the top 10 drug expenditures for nonfederal hospitals in 2004 and 2005.44 In particular, this patent expiration is expected to moderate drug expenditure growth for hospitals and clinics.45 In addition, a generic version of the high-use drug clopidogrel was released at risk in August 2006, but, a few weeks later, litigation stopped the sale of the drug. However, since generic clopidogrel in the supply chain was not recalled, generic clopidogrel also contributed to moderation in the increase in 2006 drug expenditures.46 Drugs with substantial expenditures will continue to lose patent protection in 2007. The consulting rm Bain and Company estimated that the value of drugs expected to lose patent protection in 2007 will be $27 billion.47 Table 2 lists specic drugs expected to lose patent protection in 2007 and 2008. (Note that estimating a patent expiration date is complex, and these dates are subject to rapid change due to litigation, additional patents, exclusivities, and other factors, which are impossible to anticipate.) Important potential patent expirations for 2007 that may be particularly relevant to hospitals and clinics include fosphenytoin, carvedilol, zolpidem, and amlodipine. Recent developments related to the prompt availability of generic drugs are mixed. Generic availability could be improved by efforts to limit citizen petitions to FDA that may delay generic drugs and the ongoing scrutiny of authorized generic drugs. However, generic availability may be limited because regulatory

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Figure 3. Quarterly expenditures for nesiritide.

barriers may exist for the approval of some generic drugs, and the regulatory pathway for generic biologics remains undened. To alert the agency of scientic or safety issues related to a pending decision, a citizen petition can be led with FDA. While this process is designed to communicate legitimate concerns, there is concern that it is being used as a mechanism by which manufacturers of brand-name products can block the introduction of generic drugs. The number of petitions has increased from 90 in 1999 to 170 in 2006, and one analysis has shown that 20 of 21 petitions led by manufacturers of brand-name drugs since 2003 were eventually rejected by FDA.48 FDA has taken action to resolve petitions more quickly, and

legislation has been introduced in the Senate and House of Representatives to limit the inuence of petitions. Specifically, the legislation would make it such that petitions would not delay approval of an NDA.49,50 The number of authorized generic drugs marketed in 2006 has grown, including widely used drugs such as paroxetine, metformin, bupropion, gabapentin, and, most recently, sertraline.51,52 Authorized generic drugs are made when the original manufacturer contracts with another company to market a generic version of a drug. The drug is still manufactured and marketed under the original NDA but at a lower price and not under the brand name. Authorized generics are usually marketed only when the brand-name drug loses

patent protection and are often discontinued once more generics reach the market. While authorized generics may increase competition and decrease generic prices during the exclusivity period, they limit the prots of the generic company with initial exclusivity to sell the generic drug, and the generic drug industry views them as disincentive for companies that manufacture generics.53 Several developments may make it less attractive for manufacturers of brand-name drugs to market authorized generics. The Federal Trade Commission (FTC) is studying the short- and long-term competitive impact of authorized generic drugs.54 The results of the FTC study are expected in 2007. In addition, bills were introduced in both the Senate
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Figure 4. Quarterly expenditures for caspofungin and voriconazole. Squares = caspofungin, triangles = voriconazole.

and House of Representatives that would not allow authorized generics to be marketed during the exclusivity period.55,56 While these actions are not expected to eliminate frivolous citizen petitions or the marketing of authorized generic drugs in 2007, they indicate that the regulatory and legislative environment is sensitive to issues related to the availability of generic drugs. Nevertheless, other regulatory issues exist that may constrain the availability of generic drugs. The rst issue that may limit the availability of generics is the rate of abbreviated NDA (ANDA) approval at FDA, which is the application process used to approve generic drugs. The number of generic approvals decreased by approximately 10% in 2005, from 380 in 2004 to 344 in 2005, and the median approval
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time for generics increased from 15.7 months in 2004 to 16.4 months in 2005.16 FDA projects that approval time will continue to increase to 16.9 months in scal year 2006 and 17.5 months in scal year 2007.57 Further, there is a substantial backlog of 800850 pending ANDAs at FDA, and a record number of applications was expected in 2006.58 The number of pending applications is not expected to be reduced quickly since funding for FDAs Ofce of Generic Drugs has essentially remained at over the past three years.57 FDA ofcials have attempted to quell concerns regarding the backlog by noting that lack of communication and slow action by ANDA sponsors have contributed to the backlog.59 While the backlog does not appear to slow the approval of first-time generic drugs, it could act to reduce the num-

ber of generics that reach the market quickly and limit competition. If available, generic versions of biological therapies could provide meaningful savings for hospitals and clinics.a Although patents for some biologicals have expired, limited progress toward widespread availability of generic biologics was made in 2006. While various barriers to market entry of generic biologics exist, including significant initial research, development, and manufacturing costs and a market structure that is signicantly smaller and different from chemical compounds, perhaps the most signicant barrier is the lack of a clearly dened regulatory pathway for approval.60 Progress toward a dened regulatory pathway has been slow. When Sandoz led an application for the follow-on human growth hormone

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Table 2.

Selected Potential Patent Expirations, 200708a

Drug
Metoprolol extended release (Toprol XL) Zolpidem (Ambien) Fentanyl transmucosal (Actiq) Amlodipine (Norvasc) Carvedilol (Coreg) Ziprasidone (Geodon) Sumatriptan (Imitrex) Fosphenytoin (Cerebryx) Cetirizine (Zyrtec) Irinotecan (Camptosar) Zaleplon (Sonata) Alendronate (Fosamax) Venlafaxine (Eexor) Granisetron (Kytril) Risperidone (Risperdal) Levetiracetam (Keppra) Salmeterol (Serevent) Divalproex (Depakote)
a b

Manufacturer
AstraZeneca Sano Cephalon Pzer GlaxoSmithKline Pzer GlaxoSmithKline Pzer Pzer Pzer King Pharmaceuticals Merck Wyeth Roche Janssen UCB Pharma GlaxoSmithKline Abbott Laboratories
-Blocker

Class
Insomnia Opioid analgesic Calcium channel blocker - and -Blocker Atypical antipsychotic Antimigraine Anticonvulsant Antihistamine Antineoplastic agent Insomnia Bisphosphonate Antidepressant Antiemetic Atypical antipsychotic Anticonvulsant Antiasthmatic Anticonvulsant

Current Patent Expiration Dateb

2007 2007 2007 2007 2007 2007 2007 2007 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008

Sources: Medications in Development Database (MinDD) and University of Wisconsin Hospital and Clinics. Patent expirations listed were veried from multiple sources at the time of publication. Drug patent expirations are subject to rapid change, and patent expiration does not guarantee drug availability.

product Omnitrope, it was thought that this product might represent a template for future approvals. After almost three years of debate, including legal action, the product received FDA-approved labeling in 2006.61 However, FDA explicitly articulated that the product is not a generic biologic, is not equivalent to the innovator product, and does not represent a pathway for future approvals.62 Predictably, the generic industry contends that many generic biologics can be approved using the current regulations and process for small molecules, but the biotechnology industry is lobbying to retain requirements for a full-approval process, including extensive clinical trials for safety and efcacy.63,64 To provide a process for the approval of generic biologics, it is becoming clear that legislative action will be required.65 Senators Hillary Rodham Clinton (D-NY) and Charles Schumer (D-NY) and Representative Henry Waxman (D-CA) introduced a bill (HR 6257) on September 29, 2006,

seeking to expand access to lowercost generic versions of biotechnology medications. The bill would provide guidance to FDA on the review and approval of follow-on products using standards analogous to those used to approve conventional generic drugs (similarity of molecular structure and action), empower pharmacists to make generic substitution of approved products, and provide tax incentives to manufacturers to develop generic biologics.66 While it is unlikely this legislation will move through Congress quickly, it is an encouraging step toward cost containment in this extremely expensive category of medications. Beyond issues related to generic drug availability, it is also important to monitor generic drug pricing. The dynamics of the generic drug industry play an important role in determining generic drug costs. Last year, we reported that extensive consolidation had occurred in the generic drug industry.44 It remains possible that fewer companies in the

market will result in higher prices for generic drugs, and anecdotes of this occurring exist.67 However, generic drug industry analysts predict that multiple factors will limit generic drug companies ability to broadly increase prices. However, generic drug industry dynamics can result in substantial price increases for products relevant to hospitals.68 For example, when a large pharmaceutical company sold several niche generic products, including chlorothiazide, indomethacin, mechlorethamine, and dactinomycin, to a smaller corporation, substantial price increases followed.69 The cost of these drugs increased by approximately 1000% or more, and one purchasing group of 42 pediatrics hospitals estimated that its members expenditures for these four drugs would increase from $300,000 to $5.9 million.70 In summary, both factors that will limit and improve generic availability exist, and, due to rapid change in the generic drug industry, the possibility exists for substantial price increases
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for generic drugs. However, these potentially negative developments for generic availability and pricing do not overshadow the fact that an unprecedented number of high-cost, high-volume brand-name drugs lost patent protection in 2006.71 This pattern will continue in 2007 and serve to moderate the growth in prescription drug expenditures. Other factors that may inuence drug expenditures In addition to new drugs in the pipeline, the diffusion of recently approved drugs, and the availability and pricing of generic drugs, other emerging factors are expected to inuence drug expenditures in 2007. While it is difcult to predict the precise impact of these factors, pharmacy leaders should consider each factor as they prepare budgets and other plans for their organizations. Medicare Part D. The new Medicare prescription drug benet (Part D) began on January 1, 2006. With just one year of experience with this new program, there are limited data on its effect on prescription drug expenditures and how it has affected hospitals. The rollout of Part D was marred with problems, most of which involved dual-eligible beneficiaries (those who qualify for both Medicare and Medicaid) who were switched to Medicare in December 2005. Beginning in January, as these patients sought to get prescriptions filled, pharmacists were unable to process prescription claims because of CMSs failure to load eligibility information. As a result, most state Medicaid programs had to enact emergency coverage programs to reimburse pharmacies for drugs that should have been covered by Part D plans. For hospital pharmacies that bill for self-administered or take-home drugs, one of the biggest initial problems was confusion between the Part D and Part B programs. Part D plans would often reject claims for inject308

able drugs and require pharmacists to submit a claim of refusal from Part B, creating a signicant and unnecessary delay. Other types of pharmacies were (and continue to be) affected by this problem, including retail, specialty or home infusion, and longterm care pharmacies that routinely bill for drugs covered under various parts of Medicare. This problem is plan specic and, in some cases, has not been resolved. A substantial area of uncertainty before January 1, 2006, was how many people would enroll in the Part D program. Clearly, enrollment would affect drug expenditures. Because enrollment in the discount drug programs that preceded the Part D program was so dismal, CMS put signicant effort into ensuring good enrollment in the new program. All 43 million Medicare-eligible seniors were encouraged to enroll by May 15, 2006, under the threat of penalties. Dual-eligible beneciaries were automatically enrolled. Enrollment exceeded CMSs expectations. As of June 14, 2006, according to CMS, there were 22.5 million people enrolled in Part D plans, while 10.4 and 5.4 million had credible prescription drug coverage through an employer plan or an alternative source (e.g., Veterans Health Administration), respectively.72 However, these numbers have been disputed. A Kaiser Family Foundation Report found that the number of beneciaries with prescription drug coverage has not changed but rather shifted from other forms of coverage to Medicare.73 No denitive data on the cost implications of Medicare Part D have been published, and it is unlikely that any data will be available until late in 2007. In an article published on June 1, 2006, Mark McClellan, who was the director of CMS, stated that competition is providing better coverage options and is leading to lower costs than expected for beneciaries and taxpayers.74 How-

ever, the data provided to support the claim were based on premiums paid by beneficiaries rather than actual drug costs. A survey of pharmacists and physicians conducted by the Kaiser Family Foundation provides some early information on the drug cost implications of Medicare Part D.75 The majority of pharmacists (86%) and physicians (71%) surveyed believed that the benefit was helping patients save money on medications. Seventynine percent of pharmacists reported believing that the new benet has improved access (well or somewhat well) to prescription drugs for their patients. Nevertheless, most pharmacists (91%) and physicians (92%) believed that the law is too complicated and reported problems encountered by patients when trying to obtain medications. Until further data become available, it is difcult to include Medicare Part D in forecasts of prescription drug expenditures. At this point, there is no evidence that the program will increase or decrease hospital drug expenditures. Changes in drug distribution. Relationships among manufacturers, wholesalers, and group purchasing organizations continue to evolve and may substantially influence costs paid by health-system pharmacies. Drug wholesaler fee-for-service distribution contracts now appear rmly established, but this trend requires continued monitoring.76-78 Note that other changes in the pharmaceutical supply chain may occur, which could increase costs for health systems. For example, in 2006, one biotechnology company proposed to strictly limit the number of distributors for three drugs and exclude these drugs from prime-vendor agreements.79 While the distribution program was eventually modied, one pharmacist suggested that the changes as originally proposed would have increased his hospitals drug expenditures by $150,000.80

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Drug expenditure forecast Forecasting drug expenditure patterns is very complex. The factors that drive increases in drug expenditures can be divided into four main categories: (1) price ination, (2) utilization, (3) mix, and (4) a blend of utilization and mix representing expensive but innovative medications. The inationary rate of prescription drugs attributable to price is the increase in the unit cost for existing drugs over time. The increase in expenditures attributable to utilization can be described as the changes in the number of users, number of days of therapy, or dose per day of therapy. The increase in expenditures attributable to mix reects utilization patterns that emphasize newer, more expensive agents over older, less expensive, yet equally effective alternatives (e.g., manifesting as a preference for brand-name products over generic alternatives). Finally, a portion of the increase in drug expenditures can be attributed to a blend of the utilization and mix factors. In this case, very expensive drugs become available to treat diseases that are untreatable with existing medications. Various factors contribute to the development of a forecast for future pharmaceutical expenditures. These factors include changing patterns of prescription drug utilization, impact of new drugs in development, expected patent expirations, and changes in price of existing drugs. Below, we summarize trends in prescription drug expenditures and present specic information related to drug expenditures in clinics and hospitals. While this article is primarily directed to practitioners in hospitals and health systems, drug expenditure patterns for the outpatient and clinic settings are also discussed. We dene drugs administered in a physician ofce or a hospital outpatient clinic as clinic-administered drugs. Clinicadministered drugs are typically chemotherapy or biologics that are administered intravenously. Trends

in ambulatory care (outpatient and clinic administered) drug expenditures may not be relevant for health systems that do not manage signicant outpatient enterprises, but they should be considered by hospitals as these behaviors often inuence inpatient utilization. Further, outpatient drug expenditures drive public and policy-related awareness of rising drug expenditures. Trends in overall prescription drug expenditures. Several reports are released annually studying the trends in prescription drug expenditures as well as the drivers (Table 3).1,81,82 The Express Scripts cohort uses a substantial sample of Express Scripts clients but excludes Medicaid recipients and Medicare beneciaries enrolled in Medicare + Choice plans. The data reported for Express Scripts in Table 3 also exclude specialty drugs. IMS Health data contain prescription drug sales in retail and nonretail settings. It is important to note that two of these reports (Express Scripts and Medco Health) focus solely on prescription drug expenditures of a managed care population in the outpatient setting. The methods used in each of these studies vary, and thus the estimates of overall growth in drug expenditures between 2004 and 2005 are slightly different, ranging from 5.4% to 7.9%. Price ination was the biggest driver of the increase in drug expenditures in 2005 (for two of the three analyses), similar to the trend seen in 2004. Lipid-lowering agents were identied as the main driver of the overall increase in drug expenditures and accounted for the highest prescription and dollar volume in 2006.1,81,82 Sedatives and hypnotics experienced the highest growth in both the Medco and Express Scripts populations. All of these analyses showed the signicant effect of drug safety issues for COX-2 inhibitors, selective serotonin-reuptake inhibitors, and antipsychotics on the slowing of drug expenditures.1,81,82

Express Scripts projects a 7.5% and 7.0% increase in drug expenditures per capita in 2007 and 2008, respectively. Medco is forecasting a 68% and 79% increase in 2007 and 2008, respectively. IMS Health is projecting a 58% increase in prescription drug expenditures in the United States in 2007. CMS has estimated that total outpatient prescription drug expenditures will increase by 8.0% in 2007 and 2008.2 There is little variation in the projected growth of drug expenditures. An increase in generic drug use, the negative impact of drug safety issues, a decrease in the extent of prescription drug insurance, and higher overall rates of prescription drug use are expected to be the key factors in future drug expenditures. To date, Medicare Part D is not expected to have a major impact on total prescription drug expenditures. Overall, the spending on prescription drugs in nonoutpatient settings (hospitals, clinics, long-term-care facilities, and home health care) increased by 8.6% from 2004 to 2005, compared with an increase of 10.2% from 2003 to 2004.1 These settings accounted for 25.8% of the total dollar volume of drug sales in 2005. Nonfederal hospitals accounted for 39.6% of the drug spending for the nonretail setting and 10.2% of the total drug expenditures for 2005. Interestingly, through the rst nine months of 2006, the spending for clinics ($21.7 billion) was higher than the spending for nonfederal hospitals ($19.7 billion). The trend in drug expenditures for nonfederal hospitals and clinics is described below. Trends in clinic-administered d r u g e x p enditures. Prescription drug expenditures for clinicadministered medications increased by 12.4% in 2005 compared with 2004.1 Growth in expenditures for clinic-administered medication was signicantly higher than expenditures in outpatient and nonfederal hospitals. Clinic expenditures have
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Table 3.

Prescription Drug Expenditure Trends1,81,82

Item
Data source Population

Express Scripts
Express Scripts claims data Individuals in a sample of health plans served by Express Scripts (70% nonmanaged care and 30% managed care; excludes Medicaid and Medicare + Choice enrollees) 3 million Discounted average wholesale price

Medco Health
Medco Health claims data Clients with integrated benets (plans that include both retail and home delivery options)

IMS Health
National Sales Perspectives Total retail national pharmaceutical sales

Population size Cost data

NAa Net of average wholesale price discounts and rebates

Total U.S. population Invoice price

Overall increase in prescription drug expenditures from 2004 to 2005 Increase attributable to price from 2004 to 2005 (%) Increase attributable to utilization from 2004 to 2005 (%) Increase attributable to mix from 2004 to 2005 (%) Trend projection, 2007 (%) Trend projection, 2008 (%)
a

7.9 3.3 4.0 0.4 7.5 7.0

5.4 4.7 2.7 1.1 68 79

5.4 4.1 1.1 (utilization and mix) 2.3 (new drugs only) 58 NA

NA = not available.

increased by 90% over the ve-year period between 2001 and 2005, increasing from $13.2 billion in 2001 to $25 billion in 2005. However, clinic expenditures are small in relation to total medication expenditures (representing only 9.9% of total medication expenditures in 2005) and largely involve oncology agents, a trend that could be signicantly altered with continued changes in Medicare reimbursement. The continued emergence of restricted-access programs and specialty pharmacies that often manage these therapies has clear practical and nancial implications for health-system pharmacies, but there is not yet sufcient information to quantify the implications of these practices. Over the past few years there has been an increase in the diseases and number of people treated by clinicadministered medications. More

cancers, often treated with high-cost medications, are also being treated in clinic settings. This trend is expected to continue increasing with the increase of cancer diagnoses.83 The global oncology market spending was more than $28 billion in 2005 and grew by 18.6% in 2005 compared with 2004.84 Recent trends indicate that the inationary trend for clinic-administered medications has stabilized at 1213% after years of an annual growth rate exceeding 20%. This decrease can largely be attributed to a decrease in the use and mix of drugs administered in clinics. However, negligible price ination for these drugs is also important in the moderation of drug expenditures. Through the rst nine months of 2006, the growth in expenditures for clinics was 18.2% more than the same time period in 2005. The top ve drugs in 2005 accounted for 39%

of all clinic-administered medication purchases, and the top three in 2004 (epoetin alfa, peglgrastim, and darbepoetin) accounted for 28% of all drug purchases (Table 4). Antineoplastic agents and hemostatic modifiers experienced the highest growth among clinicadministered medications, increasing by 23% and 18%, respectively. The growth in expenditures for antineoplastic agents was largely driven by increased expenditures for monoclonal antibodies. As shown in Table 4, the expenditures for bevacizumab increased by 349%, trastuzumab by 57%, and cetuximab by 53%. The growth in expenditures for gastrointestinal agents was driven by iniximab (Remicade, Centocor), which increased in sales by 15%, and the growth in expenditures for blood growth factors was driven by a 39% increase in sales of darbepoetin.

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Iniximab is classied as a gastrointestinal agent but is also used for nongastrointestinal indications (e.g., rheumatoid arthritis). Trends in hospital drug expenditures. Data for nonfederal hospital drug purchases taken from the IMS Health National Sales Perspectives database were used to evaluate trends in hospital drug expenditures.1 These data consisted of drug purchasing information for 5230 hospitals in calendar year 2005. Hospital drug expenditures increased by 5.7% between 2004 and 2005, totaling $25.8 billion in expenditures in 2005. For the 12 months ending September 2006, prescription drug expenditures in the hospital setting increased by 3.0%. Factors affecting the trend in hospital drug expenditures included drug prices (2.9%), volume and therapeutic mix (1.9%), and new drugs (2.0%). It is interesting to note that expenditures related to volume and mix have decreased for both injectable and noninjectable drugs, likely reecting an increase in the use of generic drugs.

Injectable drugs accounted for 74% ($18.9 billion) of the total inpatient drug expenditures. 1 Expenditures for injectable drugs increased by 2.6%, while expenditures for noninjectables increased by 4.1% in 2004 compared with 2003. However, the prices of injectable drugs rose at a slower rate than noninjectables. Overall drug prices for injectables increased by only 2.4% between October 2005 and September 2006, but prices for noninjectables increased by 4.8%. Table 5 presents the hospital drug expenditures and change in expenditures for the top 10 therapeutic classes. These therapeutic classes make up more than 70% of hospital expenditures. Antiinfectives alone comprise more than 12% of hospital drug expenditures. Expenditures for antiinfectives increased by 7% in 2005 compared with 2004; however, expenditures decreased by 5.6% through the first nine months of 2006, largely due to the generic availability of ceftriaxone. Biologicals and hemostatic modiers were the fastest

growing therapeutic classes in 2005. Table 6 presents the hospital drug expenditures and change in expenditures for the top 15 drugs. These drugs accounted for 27.9% of total inpatient drug expenditures in 2005. The most signicant growth in dollar volume in 2005 was for darbepoetin (Aranesp, Amgen), which increased in expenditures by 67%; however, this was offset by a signicant decrease in expenditures for Procrit (Ortho Biotech Products) and Epogen (Amgen), which decreased by more than 18%. Drug expenditures for nesiritide (Natrecor, Scios) decreased by 28% in 2005 and decreased by more than 68% through the rst nine months of 2006. Forecast of increased expenditures for 2007. There may be important new drug approvals in 2007, but no drugs in the pipeline are expected to have a major nancial impact across all settings. Increased utilization is expected to continue in the outpatient setting, especially with the continued implementation of Medicare Part D. However, increased

Table 4.

Top 15 Drug Expenditures for Clinics1

2006 Expenditures (through Sep 2006) ($ Thousands)
3,021,091 1,893,500 1,483,439 1,229,255 1,046,976 694,264 538,436 881,221 688,318 413,457 358,327 305,785 288,127 272,090 306,053

Drug
Epoetin alfa (Procrit, Epogen) Darbepoetin (Aranesp) Peglgrastim (Neulasta) Iniximab (Remicade) Rituximab (Rituxan) Oxaliplatin (Eloxatin) Docetaxel (Taxotere) Bevacizumab (Avastin) Trastuzumab (Herceptin) Zolendronic acid (Zometa) Gemcitabine (Gemzar) Paricalcitol (Zemplar) Pneumococcal vaccine, diphtheria conjugate (Prevnar) Irinotecan (Camptosar) Cetuximab (Erbitux)

Total 2005 Expenditure ($ Thousands)

3,814,051 1,691,197 1,500,168 1,461,973 1,220,564 737,247 679,701 674,272 574,638 537,307 469,285 378,303 367,172 305,820 257,793

Percentage of Total 2005 Clinic Expenditures

15.2 6.8 6.0 5.8 4.9 2.9 2.7 2.7 2.3 2.1 1.9 1.5 1.5 1.2 1.0

Percent Increase over 2004

2.3 39.3 29.3 15.1 27.8 36.2 6.9 348.5 57.2 15.1 11.6 8.1 4.2 6.5 52.9

Percent Increase, Year-to-Date Sep 2006 vs. Year-toDate Sep 2005

5.1 54.5 34.4 15.1 20.5 27.4 7.0 95.2 81.5 4.4 2.6 8.4 4.1 18.8 68.2

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generic availability of important drugs such as clopidogrel and simvastatin will significantly contribute to the moderation of growth in drug expenditures. We project an inflationary rate of 57% for the outpatient setting (12% related to price, 35% related to volume and mix, and 1% related to new drugs). Clinic expenditures will continue to increase at a pace similar to that

of the past few years. We project a 1416% increase in expenditures for clinic-administered drugs (34% related to price, 89% related to volume and mix, and 23% related to new drugs). We project a 46% inationary rate for hospital drug expenditures (23% related to price, 34% related to volume and mix, and 1% related to new drugs). These projections are summarized in Table 7.

Conclusion Moderation in the growth in prescription drug expenditures has occurred over the past several years. A variety of factors, including the availability of important and widely used generic drugs, recent safety concerns, and the continued increase in cost sharing for employees in employer-sponsored health plans, have contributed to this moderation

Table 5.

Top 10 Therapeutic Classes by Expenditures for Nonfederal Hospitals1

Percentage of Total 2005 Nonfederal Hospital Expenditures
12.0 11.8 10.8 10.2 5.4 4.5 4.4 4.4 4.1 3.7

Therapeutic Class
Systemic antiinfectives Hemostatic modiers Antineoplastic agents Blood growth factors Diagnostic aids Hospital solutions Psychotherapeutics Anesthetics Biologicals Gastrointestinal agents

Total 2005 Expenditure ($ Thousands)

3,101,632 3,035,120 2,781,424 2,642,378 1,386,260 1,172,584 1,128,637 1,125,912 1,064,736 967,189

Percent Increase over 2004

7.1 9.5 7.8 7.7 5.6 3.5 1.3 3.8 24.1 1.1

2006 Expenditures (through Sep 2006) ($ Thousands)

2,229,846 2,364,684 2,308,742 2,120,270 1,106,555 863,330 841,730 711,932 821,578 784,028

Percent Increase, Year-to-Date Sep 2006 vs. Year-toDate Sep 2005

5.6 4.4 13.0 8.3 7.1 2.3 0.8 17.3 5.0 9.9

Table 6.

Top 15 Drug Expenditures for Nonfederal Hospitals1

Percentage of Total 2005 Nonfederal Hospital Expenditures
3.7 3.5 2.5 2.2 2.1 2.1 1.9 1.7 1.3 1.2 1.2 1.2 1.1 1.1 1.1

Drug
Epoetin alfa (Procrit, Epogen) Enoxaparin (Lovenox) Darbepoetin (Aranesp) Peglgrastim (Neulasta) Iniximab (Remicade) Ondansetron (Zofran) Rituximab (Rituxan) Piperacillintazobactam (Zosyn) Filgrastim (Neupogen) Eptibitide (Integrilin) Pneumococcal vaccine, diphtheria conjugate (Prevnar) Iohexol (Omnipaque) Sevourane (Ultane) Ceftriaxone (Rocephin) Caspofungin (Cancidas)

Total 2005 Expenditure ($ Thousands)

960,121 899,069 633,150 559,470 554,083 531,495 488,436 448,198 347,282 309,313 307,279 302,810 295,165 286,044 273,403

Percent Increase over 2004

18.2 11.6 66.5 31.1 6.2 7.9 8.3 17.2 3.7 1.1 44.2 2.8 16.7 33.8 26.3

2006 Expenditure Percent Increase, Year-to-Date Sep (through 2006 vs. Year-toSep 2006) Date Sep 2005 ($ Thousands)
664,605 708,274 593,241 484,581 459,733 434,426 395,614 363,020 262,165 240,561 223,743 273,725 193,218 8,587 173,646 8.7 5.3 30.5 17.9 13.4 10.0 9.8 8.1 0.8 2.9 3.9 24.6 10.4 96.9 13.8

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Table 7.

Summary of Drug Expenditure Ination Rate Forecast by Setting

Setting
Outpatient Clinica Nonfederal hospital
a

Ination Rate Forecast (%)

57 1416 46

the same amino acid sequences and a similar enough production process and overall structure to appear on its face to be very similar to an already approved product or products. The number of different terms for generic biologics illustrates the complexity of the issue. For simplicity, we refer to these products as generic biologics.

18. 19.

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trend. The drugs expected to be approved in 2007 will not likely cause a broad increase in drug expenditures, and the diffusion of some recently approved drugs remains restrained by safety concerns. Also in 2007, important generic drugs will receive approval. With a prescription drug expenditure growth rate of less than 10% expected for both the outpatient and hospital settings, this moderation trend is expected to continue in 2007. However, double-digit growth in drug expenditures is expected for the clinic setting, fueled primarily by biologicals, especially monoclonal antibodies for cancer therapy. It remains essential for pharmacy managers to understand institutional and national drug expenditure patterns and take a proactive approach to promoting efcient drug use. Comparison of health-system-specific data and trends with the national information presented in this article may provide a useful context when presenting institutional drug costs to senior management.
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