Drugs driving medical cost rise

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Health care expenditures, led by a spike in prescription-drug costs, increased faster in 2006 than the previous year, a government study shows.

The wide-ranging study found that spending on prescription drugs, hospitalization and doctor care, among other services, increased 6.7 percent from 2005, for a total output of $2.1 trillion, or 16 percent of the gross domestic product.

The health care spending data are the most recent available.

"If federal revenues as a share of gross domestic product remain at their current level, that rise in spending will eventually cause future budget deficits to become unsustainable," the Congressional Budget Office warned in its annual report, released last month.

The CBO said spiraling health care costs pose the single largest budget danger.

"The rate at which health care costs grow relative to national income — rather than the aging of the population — will be the most important determinant of future federal spending," the agency said.

Prescription-drug spending, which accelerated by 8.5 percent that year, represented the bulk of the increase. Pharmaceuticals spending rose for the government and decreased for the private market, the report said.

"Implementation of the Medicare drug-benefit shifted the funding of retail drug purchases and impacted the rate of overall drug-spending growth," said the lead author of the study, Aaron Catlin, an economist with the Centers for Medicare & Medicaid Services.

Spending increased on both brand-name and generic prescription drugs. Several brand-name drugs — most notably Merck Co.'s cholesterol drug Zocor and Pfizer Inc.'s psychiatric medication Zoloft — lost patent protection and became available in generic form in 2006, leading to wider availability and higher overall spending, according to the report.

Private health insurance companies reduced drug spending and increased their premiums by a lower-than-expected 5.5 percent, the slowest rate of growth since 1997, according to the report.

However, household spending on health care jumped by 6 percent, to $612 billion, largely because of more money going to Medicare premiums, the report states.

Meanwhile, public spending on doctors grew to $450 billion, the slowest rate increase since 1999. Researchers attribute this to Medicare payments, which stayed at the same level as 2005 payments.

"Private insurers appear to have followed the low Medicare price in setting prices for privately financed physician services," the report stated.

Meanwhile, hospital spending grew 7 percent in 2006, to a total of $648 billion, nearly the same level as in 2005. Hospital spending dropped 8 percent since 2002.