Third Parties Control 83 Percent of Prescription Drug Spending, Up From 52 Percent in 1993

Adam J. Fein of Drug Channels has written a short article describing the evolution of payment for prescription drugs. In just twenty years, patients’ share of payments dropped from almost half of the spending to just 17 percent. Even worse, Fein forecasts, the share will drop to 12 percent by 2023.


Of course, if you look at the graphic, you see that most of the third-party payer growth is government, while private insurance shrinks as a share. By 2023, 45 percent of prescription drug spending will be controlled by government.

Does anyone really think that the government will continue to hold back from fixing prices as its share of spending approaches? This is a time bomb for the pharmaceutical industry.

Even worse, most people who use prescription drugs are capable of paying for them directly: We live in an era of paying $4 for a month’s supply of commonly used medicines. And yet, the truly sick — cancer patients and the like — are stuck with out-of-pocket bills for many thousands of dollars.

This is not what health insurance should look like.

Comments (4)

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  1. Jake Sanders says:

    America and pills: It’s complicated

  2. Devon Herrick says:

    I like Adam Fein, he has a sense of humor in his otherwise serious writings. Another trend is drug spending is increasingly on specialty drugs. Now one-quarter of drug spending is on specialty drugs. By 2020 about half of spending could be on specialty drugs costing $1,000 per month or more.

    There is one thing you can say about drug spending by third-party payers, they tend to use cost-containment tools. Even Medicare drug plans are run by private firms that use tools to encourage seniors to use lower-cost drugs.

    • Adam J. Fein says:

      Thanks, Devon! Glad that you appreciate my attempts to make pharmaceutical economics as entertaining as possible, despite the scary forecasts.

      One note on the blog post above: In addition to the 45% from gov’t programs, an additional 5% will be paid by private insurance purchased via exchanges. Most of these plans will have a big gov’t subsidy, so they are de facto gov’t paid, too.

  3. Don Levit says:

    Medicare Part D is a big reason for the government’s share increasing.
    Beneficiaries pay 25% of the premium; the government pays 75%.
    Unlike the so-called trust funds of Medicare and Social Security, no one paid money for years up front before collecting.
    Don Levit