Prescription drugs play an ever-increasing role in modern medicine. New medications are improving health outcomes and quality of life, replacing surgery and other invasive treatments, and quickening recovery for patients who receive these treatments. As important as prescription drugs are, not everyone has access to them. The newest drugs are often the most expensive, and millions of Americans - especially elderly and disabled Medicare beneficiaries - have inadequate or no insurance coverage for drugs. Nearly a third of all Medicare beneficiaries have no financial protection for the costs of drugs, if they can obtain them at all. Many additional beneficiaries find themselves moving in and out of the protection provided by insurance over the course of a year.

Medicare has generally excluded coverage of outpatient prescription drugs, as was common in private health plans when the program was enacted in 1965. Since then drug coverage has become a standard feature of private insurance, and it has become clear that the omission of outpatient drug coverage represents a crucial gap in protection for the most vulnerable Medicare beneficiaries. As part of a broader plan to modernize Medicare, President Clinton has proposed a new, voluntary Medicare drug benefit that would offer all beneficiaries access to affordable, high-quality prescription drug coverage while maintaining the fiscal integrity of the program. In Congress, there has also been growing bipartisan interest in finding ways of extending drug coverage.

As policymakers consider options to ensure that every American can have access to innovative drug treatments, there is an urgent need for comprehensive and reliable information on drug coverage, drug spending, and drug prices. On October 25, 1999, the President directed the Secretary of Health and Human Services to study prescription drug costs and trends for Medicare beneficiaries. He asked that the study investigate:

• price differences for the most commonly used drugs for people with and without coverage;

• drug spending by people of various ages, as a percentage of income and of total health spending; and

• trends in drug expenditures by people of different ages, as a percentage of income and of total health spending.

This report is the Department's response to that request. It represents the work of individuals and agencies throughout the Department, including the Agency for Healthcare Research and Quality (AHRQ), the Food and Drug Administration (FDA), the Health Care Financing Administration (HCFA(now known as CMS)), and the Office of the Assistant Secretary for Planning and Evaluation (ASPE).

• Report

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