Prescription drug costs slow.

• Position: TRENDS & TRANSITIONS

In 2003, prescription drugs were widely blamed for fast-escalating health costs. They'd increased 12 percent overall that year, including a whopping 18 percent to 20 percent increase for Medicaid programs. States passed dozens of laws trying to rein in, and help pay for, such spending.

Two new reports show a dramatic and surprising turn of events. For 2007, annual growth in prescription drug spending slowed drastically. A federally sponsored study documented annual growth of prescription drug spending at 4.6 percent, lower than any other major health care sector and the lowest level in 45 years. Another study led by IMS Health showed growth had dropped to only 3.8 percent in the commercial market for medications.

Within Medicaid, prescription drug spending actually decreased 1.8 percent, with 31 states reporting spending less in 2007 than in 2006. The slowdown in costs does not mean the prescription drug market is shrinking or unimportant--it totaled 3.5 billion individual transactions, worth about $228 billion in 2007, with larger totals estimated for 2008 and 2009.

However, these changes are a hopeful sign for policymakers worried about keeping health care affordable, both to patients and to the public and private payers. The cause for the slowdown is fairly well-documented and includes:

* Use of generic drugs, which cost on average 30 percent to 80 percent less than...