America's healthcare tab has hit a new record. According to federal data published late last month, national health expenditures climbed to nearly $5.7 trillion in 2025, an increase of 7.3% over the previous year.
The report noted that retail prescription drug spending rose 11%, driven in part by increased use of GLP-1 medicines.
Increases in health spending are not, by themselves, evidence that our system is failing.
As societies become wealthier, people generally spend more on healthcare because they place a higher value on living longer and healthier lives.
The real question isn't whether healthcare spending increased.
It's why.
Some healthcare spending is due to the enormous cost of medical innovation.
This is especially true in the drug sector. Bringing a single new medicine to patients typically requires 10 to 15 years of research and billions of dollars in investment.
That spending often results in real medical progress.
Fifty years ago, Americans couldn't buy GLP-1 medicines, biologic drugs, cures for hepatitis C, or many of today's targeted cancer treatments — because they didn't exist.
We spend more on medicines today in part because they can do far more. And in many cases, they end up saving money in the long run by keeping patients out of the hospital.
GLP-1 medicines are a case in point.
Despite original intent to treat diabetes, they are now approved for obesity, people at high cardiovascular risk, and chronic kidney disease.
They also show promise in helping patients with numerous other serious conditions, from addiction to multiple sclerosis and Parkinson's.
Unlike many other forms of healthcare spending, drug spending often buys something entirely new: therapies that prevent disease, delay complications, and reduce the need for more expensive care.
Medicines that help patients avoid heart attacks, kidney failure, and other serious complications can reduce hospitalizations, surgeries, and other costly interventions.
In many cases, spending more on drugs means spending less elsewhere in the healthcare system.
Columbia University economist Frank Lichtenberg found in 2023 that the introduction of newer medicines reduced hospital use by 10.5%.
The resulting hospital savings exceeded the additional spending on those drugs.
Moreover, expensive medicines eventually lose patent protection — typically within 13 to 14 years — and face competition from more affordable generic and biosimilar alternatives.
Today, some 90% of prescription drugs filled in the United States are inexpensive generics. This, too, ultimately saves money.
By one estimate, generics and biosimilars saved the healthcare system $445 billion in 2023 alone and more than $3 trillion over the past decade.
In other words, today's high-priced brand-name drugs — including GLP-1s — will become tomorrow's low-cost generics.
Compare these trends in drug spending with what's going on in the hospital sector. Hospitals accounted for 31% of health spending last year — more than three times what the country spent on retail prescription drugs.
Between 2000 and 2022, hospital service prices surged more than 220% — far faster than the overall inflation rate of 74.4%.
Those price increases reflect market distortions much more than medical progress.
For instance, years of hospital consolidation have weakened competition in many communities — and sent prices soaring as a result.
Federal policy reinforces those distortions.
Medicare often pays substantially more for outpatient services performed in hospital-owned facilities than for identical services delivered in independent medical offices or ambulatory surgery centers.
Those rules reward consolidation and steer patients toward more expensive care settings.
Enacting site-neutral payment reform, wherein Medicare pays the same rate for a given service regardless of where it is delivered, could save taxpayers $156 billion over the next decade while encouraging more care in lower-cost settings.
Not all healthcare spending deserves equal scrutiny. Spending that buys longer, healthier lives is an investment.
Spending driven by consolidation and distorted incentives is waste.
If policymakers want to bend the healthcare cost curve, they should stop blaming breakthrough medicines and start fixing the hospital market.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Healthcare Policy at the Pacific Research Institute. Her latest book is "The World's Medicine Chest: How America Achieved Pharmaceutical Supremacy — and How to Keep It." Follow her on X @sallypipes. Read more Sally Pipes Insider articles — Click Here Now.