Factors Driving Increases in Drug Expenditures in Korea

Posted: 8 Jul 2007

See all articles by Soonim Huh

Soonim Huh

affiliation not provided to SSRN

Abstract

Rationale: Increase at double digit rates of drug expenditures in recent years and 29.2 percent of National Health Insurance spending in 2005 have thrust the issue of cost containment of drug spending to one of top policy initiatives in Korea. Understanding whether drug cost growth is attributable to changes in price or changes in quantity is essential to develop a cost-containment strategy for drug spending.

Objective: The objective of this study is to investigate factors driving increase in drug spending by decomposing growth into price and quantity components and to investigate growth across important therapeutic classes.

Methodology: Pharmaceutical claims data for the entire enrollees of National Health Insurance in Korea from 2002 to 2005 was analyzed. Outcome measures included total growth, price change, and quantity change. Total growth was divided into growth in use of existing products, and in use of newly introduced drugs as well as abandoned products. For existing products, price growth and quantity growth were examined and quantity growth was further decomposed into growth in volume and change in the mix of pharmaceuticals.

Results: The growth of pharmaceutical expenditures during the study period was dominated by growth in use of existing products while the use of new products had relatively little impact. For the growth of spending on existing products, the growth in quantity rather than price changes largely affected and the growth of quantity was almost evenly split between the growth of volume and the mix of pharmaceuticals. The quantity growth in existing products appeared to be the primary determinant of expenditure changes in all therapeutic classes whereas there was variation in the impacts of the growth of volume and the mix of pharmaceuticals across classes.

Conclusion: Pharmaceutical expenditure growth in recent years in Korea was largely attributable to increases of utilization as opposed to changes in prices. Efforts should be made to identify appropriateness of such utilization increases.

Keywords: Prescription drug, Expenditures, Growth

Suggested Citation

Huh, Soonim, Factors Driving Increases in Drug Expenditures in Korea. iHEA 2007 6th World Congress: Explorations in Health Economics Paper, Available at SSRN: https://ssrn.com/abstract=994242

Soonim Huh (Contact Author)

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