updated 1/6/2009 8:32:37 AM ET 2009-01-06T13:32:37

Spending on health care slowed slightly in 2007 as consumers turned more to generic drugs instead of brand-names to fill their medicine cabinets, the government reported Monday.

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Although the cost of buying drugs, visiting the doctor or going to the hospital continued to increase faster than the overall economy, the 6.1 percent growth rate for all health care spending was the slowest since 1998. In 2006, spending increased 6.7 percent.

Officials worry that devoting more and more resources to health care makes it harder for families to meet other pressing priorities and for businesses to compete internationally.

Overall, Americans spent $2.2 trillion on health care, an average of $7,421 a person, for the year.

About 67 percent of medications dispensed in 2007 were generic drugs — up from 63 percent the year before. Generics can cost as little as one-third the price of brand-names.

The factors
Several factors are helping to drive the increased use of generics. First, insurers are steering consumers to lower-priced medicines by charging low co-payments for certain drugs. Meanwhile, they charge higher co-payments for medicines they want consumers to avoid for safety and financial reasons.

Large retailers and grocers are encouraging consumers to buy generics by enticing them into their stores with low prices.

Slideshow: Perspectives on health care Several blockbuster brand-name drugs lost their patent exclusivity in 2006, generating competition. Notable examples include Flonase, an allergy medicine; Zocor, a medicine used to lower cholesterol; and Zoloft, which is used to treat depression.

Federal officials said safety concerns also probably influenced spending on medicine. The Food and Drug Administration issued more of its most serious warnings than in previous years — 68 in 2007 versus 58 the year before and 21 in 2003.

Costs still growing
Another aspect of the overall spending slowdown came from a decrease in administrative expenses associated with the new Medicare drug benefit. The program kicked in during 2006, generating a substantial uptick in administrative expenses.

Officials emphasized that the good news about slowing the increasing costs of health care extended only to prescription drugs. All other major health sectors — such as hospitals, physicians, nursing homes and home health — grew at the same rate or slightly faster than the year before.

Since prescription drugs generate only about 10 percent of all health spending, officials question how much longer the transition to generics would dampen the growth in health care costs.

"I wouldn't expect the good news to continue," said Richard Foster, chief actuary for the Centers for Medicare and Medicaid Services.

Historically, health spending has been somewhat insulated from the effects of a slowing economy, which means health care makes up an even greater share of the overall economy during recessions. In 2007, the health sector's share came to 16.2 percent, up from 16 percent the year before.

Among the major components of the health industry, officials found:

  • Hospital spending, which makes up nearly one-third of all health spending, increased 7.3 percent. In the 1990s, spending on hospital services grew at a 5.2 percent rate, thanks in part to more tightly managed care from insurers.
  • Spending for physicians and clinical services grew 6.5 percent, the same rate as the year before.
  • The cost of nursing home care increased 4.8 percent.
  • Spending for home health care increased by 11.3 percent.
  • Spending for private health insurance grew 6 percent, unchanged from the year before but much lower than in 2002 when it hit 10.7 percent.

The entire report appears in the journal Health Affairs.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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