Prescription-Drug Prices

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Abstract
In 2002, the United States spent $162.4 billion on prescription drugs. Government has traditionally played a smaller role in purchasing prescription drugs than in paying for health care services overall,1 accounting for 22 percent of prescription-drug spending as compared with 44 percent of all spending on personal health. The Medicare Modernization Act adds a prescription-drug benefit to the Medicare program, thereby reshaping the government's role as a payer for prescription drugs: the federal government's share of the country's prescription-drug spending can be expected to increase to between 30 and 40 percent during the first two years. The prices that the government pays for prescription drugs will be critically important. They will affect the cost of the new drug benefit, the financial stability of the Medicare program, and the incentives for prescription-drug manufacturers to develop new pharmaceutical agents.

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