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PwC Report Finds Medicines Still Small Share of Overall Health Spending

June 27, 2016
A new report from PwC’s Health Research Institute, Medical Cost Trend: Behind the Numbers 2017, offers evidence that medicines continue to represent a small portion of overall healthcare spending.

The report highlighted that half of all medical costs come from hospital spending: 30 percent from hospital inpatient and 19 percent from hospital outpatient. Physicians account for another 30 percent, while prescription drugs account for 17 percent. With this breakdown comes the warning that it is important to understand the weight of these components to put health spending in perspective - all components do not have the same impact.

A prime example, when it comes to misinformation on this topic, is prescription drug spending. While certain drugs continue to garner national media headlines, PwC states:
Drug spending is still a relatively small portion of overall health spending, and, as such, concerns of ever-increasing cost growth from new cures may trigger false alarms.

The reality is, as a whole, drug spending is a fairly small portion of total health spending. The report notes that a 10 percent jump in the growth in prescription drug spending would increase the overall medical cost trend by about 1.7 percent. Even specialty drugs, a notable contributor to spending growth in years past, are not expected to have the same impact in 2017. Mick Diede, chief actuary for Kaiser Foundation Health Plan, agrees by saying that, “specialty pharmacy cost is the headliner in 2016, but better management and pricing should moderate this trend in 2017.” As PwC puts it:
Despite the extensive media coverage about high-priced specialty drugs, they do not always have a big impact on medical cost trend. It depends on the combination of price and volume—and it takes a lot of both to increase medical cost trend substantially.

Read the full report here.