Despite the growth over the longer term in spending on prescription drugs, year-over-year growth rates have varied as the industry has evolved.

• Spending grew most rapidly between 1995 and the mid-2000s, as numerous “blockbuster drugs” were introduced. Blockbuster drugs are prescription drugs that generate at least $1 billion in annual sales and generally offer treatments for common health conditions, including high cholesterol, high blood pressure, acid reflux, and depression.
• Beginning in the mid-2000s, spending on prescription drugs began to fall. As patents on many brand-name drugs expired, generic alternatives were offered, which simultaneously reduced drug prices and increased accessibility. In 2006, the Medicare Part D program was created, which both expanded drug accessibility and introduced a benefit structure that incentivized enrollees to choose less expensive generic drugs.
• At the end of 2013, a new class of specialty drugs that treat Hepatitis C was introduced and temporarily caused total prescription drug spending to grow for a couple of years.
• Since 2015, spending on prescription drugs has remained relatively stable.

Government Spending on Prescription Drugs

In the United States, most government spending on retail prescription drugs comes from Medicare Part D and Medicaid:

• Medicare Part D is an optional program to assist Medicare beneficiaries with paying for retail prescription drugs. The program primarily serves Americans over age 65 and benefits are provided by private insurance plans that receive premiums from both the government and Medicare enrollees. Program enrollees are more likely than the general population to have chronic conditions that require prescriptions to be filled on an ongoing basis. In 2018, the average Medicare Part D enrollee filled 54 prescriptions and total program spending on prescription drugs was $120 billion.
• Medicaid is a health insurance program for lower-income recipients that is jointly financed by the federal and state governments. Medicaid enrollees are generally younger and healthier than Medicare enrollees, and as a result, do not generally require medication to be prescribed on an ongoing basis. In 2018, the average Medicaid enrollee filled 11 prescriptions and total program spending on prescription drugs was $32 billion.

Those two programs not only account for the majority of government spending on retail prescription drugs, but also comprise a large share of all U.S. spending in that category. In 2018, Medicare Part D and Medicaid beneficiaries were responsible for about 45 percent of nationwide spending on retail prescription drugs as measured in the National Health Expenditure Accounts.

After adjusting for inflation, the average retail price of prescription drugs has been relatively stable. The average retail price of a prescription for a Medicare Part D beneficiary increased slightly between 2009 and 2018, from $64 to $69 (in 2018 dollars). The average retail price of a prescription for a Medicaid beneficiary fell by $1 during that period, from $99 to $98.

That stabilization in average retail prices masks a number of competing factors that determine the average price of prescription drugs. One important determinant is whether a prescription is sold as a brand-name or generic drug. Brand-name drugs are sold under a specific name or trademark that is protected by a patent. Generic drugs, on the other hand, have the same active-ingredient formula and are just as safe and effective as their brand-name counterpart, but are not protected by a patent. Patent protections give a drug manufacturer monopolistic control over the price of a brand-name drug while companies often compete with one another in selling generic drugs. As a result, generic drugs are generally far cheaper than brand-name drugs.

Since 2009, the average retail price of brand-name prescription drugs has more than doubled in inflation-adjusted dollars. During that same period, the average retail price of generic prescription drugs has actually decreased.