Projecting future drug expenditures—1994

Abstract

The use of information on inflation, generic competition, market introduction of new drug entities, institution-specific drug-use patterns, and federal legislation to project drug expenditures is discussed. Inflation of pharmaceutical prices has been decreasing over the past few years. Increases in the producer price index for drugs and pharmaceuticals diminished from 6.9% in 1991 to 4.3% in the first half of 1993; the specter of government regulation may be one reason. Pharmacy group purchasing organizations (GPOs) predicted that in 1994 expenditures would increase an average of 2.1% for contracted drug items and 8.3% for noncontracted items. Expenditures for biotechnology drugs in January through July 1993 increased 16% over the same period in 1992; such agents are now hospital pharmacies' third most costly drug category, at 10% of total expenditures. Future price competition by generic drug products can be predicted from information on patent or market-exclusivity expiration. To predict the market release of new drug products, new-drug applications filed with FDA can be monitored. The most important component in projecting drug expenditures is a specific institution's pattern of use of high-cost drugs. Mechanisms that can be used to monitor changes in therapeutic strategies and drug-use protocols include drug cost indexes, assessment of drug-use patterns by outside companies, and computerized models for specific high-cost drugs. Drug expenditures can be affected by legislative changes such as the Medicaid rebate provisions of the Omnibus Budget Reconciliation Act of 1990 and the Medicare outpatient drug benefit in the proposed American Health Security Act. The accuracy of projections of drug expenditures can be improved by examining inflation, generic competition, the introduction of new drug entities, institution-specific drug-use patterns, and legislative issues. Pharmacy managers need better methods for estimating institution-specific use of high-cost drugs.