WASHINGTON (AP) – Spending on health care grew at a rate of 7.9 percent in 2004, the lowest overall increase since 2000, largely because of a shift by many people to cheaper generic drugs, according to a new study.

“The continuing shift to generic drugs is really driving the deaccelleration” in spending growth, said Cynthia Smith, lead author of the study from the Centers for Medicare and Medicaid Services.

The growth in retail drug sales slowed to 8.2 percent in 2004, compared to 10.2 percent the year earlier and 14 percent in 2002.

Overall, spending on health care in the United States came to $1.9 trillion, or about $6,820 a person, the study said.

Generic drug manufacturers as well as companies that manage pharmaceutical benefits programs for insurers and large employers took some credit for the slow down in drug spending. The groups said the government should encourage more generic substitution for brand-name drugs and greater reliance on mail-service pharmacy.

Private insurers were more successful in slowing spending growth than the public sector. Health care spending increased by 7.6 percent among private payers, compared to 8.2 percent among participants in Medicare and Medicaid.

In other sectors of the health care industry, payments for physician grew by 9 percent, a slightly higher rate than the year before. Meanwhile hospital spending grew by 8.6 percent, also slightly higher than the year before.

Health care spending continued to rise at a much faster rate than overall inflation, the report said. Wholesale prices rose by 4.1 percent overall during 2004.

The full report on health care spending is in the January issue of the journal Health Affairs.

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On the Net:

Centers for Medicare and Medicaid Services: http://www.cms.hhs.gov

Health Affairs: http://www.healthaffairs.org AP-ES-01-09-06 2110EST

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