Health-spending deceleration: mostly Bush's fault, apparently

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A great deal of analysis has been published on the causes of the health care spending slowdown system-wide — including in the pages of Health Affairs. Much attention in particular has focused on the remarkable slowdown in Medicare spending over the past few years, and rightfully so: Spending per beneficiary actually shrank (!) by one percent this year (or grew only one percent if one removes the effects of temporary policy changes).

Yet the disproportionate role played by prescription drug spending (or Part D) has seemingly escaped notice. Despite constituting barely more than 10 percent of Medicare spending, our analysis shows that Part D has accounted for over 60 percent of the slowdown in Medicare benefits since 2011 (beyond the sequestration contained in the 2011 Budget Control Act).

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While the Medicare spending slowdown is excellent news for beneficiaries and the budget, the fact that Part D is responsible for such an outsized share of the slowdown is reason to be cautious about its permanence. Lower Part D spending primarily stems from the “patent cliff” – a number of blockbuster brand-name drugs that have lost patent protection, paving the way for cheaper generic competitors — and a decrease in the rate of introduction of new brand-name drugs. It is unclear whether these trends in the prescription drug market will continue or are temporary phenomenon — with the recent rise of specialty drugs, highlighted by the $1,000/pill Hepatitis C treatment Sovaldi, the tide may already be shifting. Moreover, it is unclear that a permanent Rx drug technological slowdown would be a positive development, even if it meant lower costs.

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