Increased utilization, changes in the mix of drugs used (from older, less expensive drugs to newer, higher cost drugs), and manufacturer price inflation for existing drugs are the factors driving the dramatic increases in drug spending. Nearly half (42%) of the increase experienced from 1997 to 2002 was due to increases in the use of drugs (the change in the number of prescriptions dispensed), while changes in the mix of drugs used (34%) and price inflation of existing drugs (25%) contributed in lesser proportions. Comparing the 1997-2002 period to the previous five-year period, price inflation played a relatively larger role in cost growth, while drug use played a relatively smaller role.

Source: Kaiser Family Foundation and Sonderegger Research Center analysis using National Health Expenditures data for prescription drugs from the Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.gov/statistics/nhe/historical/, Table 2; price data from IMS Health, Pharmaceutical Pricing UPDATE, various years; and utilization data from IMS Health, National Prescription Audit Plus, various years, updated with data from the IMS Health web site at http://www.imshealth.com.