Drugs - STILL Not The Cost Problem…
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Back in April of 2007, I wrote a post entitled, “Drugs - Not The Cost Problem.” It is still one of the most read and most commented on posts on this site - with opinions flying in both directions. At the time, I thought it was because most people just assumed that drugs HAD to be one of, if not THE, key drivers behind rising health care costs, and nobody could believe they weren’t. Well here we are, twenty-two months later, and the New York Times just published a story that featured the latest federal data on health care cost increases in 2007.
Overall, the news is relatively good - health care spending only rose about 6% in 2007 - its lowest annual rate of growth in years. Hospital spending was still leading the charge - as it was in 2006 - up by over 7% in 2007. Spending on physician services was up 6%, and drug spending was up by…less than 5 percent. In addition, drug prices were up by less than 2% in 2007.
The Center for Medicare & Medicaid Services, which publishes this data annually, said the decline in the increase in drug spending was due to three things - more generics use (now up to 67%), more price competition among brands for preferred treatment on health plan formularies, and aggressive pricing by folks like WalMart and other retailers, who’ve gotten into the pharmacy distribution business in a big way in recent years.
While nothing’s ever easy in health care, this data does make one wonder if it’s possible to learn anything from this that could be applied more broadly to health care cost reform generally.
Charlie,
On the mark.
How about this for a theory…the drug “problem” was most directly affected by the introduction of tiered formularies, by making consumers (i.e., patients) price sensitive, and be proactive management of utilization (e.g., step therapy, mail order, quantity limits).
Yes, the expiration of patents for some of the blockbuster drugs and the introduction of more generics has pushed prices lower — well, just less of an increase — but without engaging the consumer through price differences at the point of service — and not hiding it in the premium the way almost all other health services are hidden from the consumer — all the generics in the world wouldn’t cause such a shift in spending, from double digits in the late 1990s and early 2000s, to low single digits.
Imagine if we did that with other parts of the health care market…like, for example, hospitals?
Nah, makes too much sense.
Price matters…just ask Wal Mart.
This is promising information, certainly, but there could be another factor that may counteract the cost benefit gained from the demise of the blockbuster drugs by virtue of dramatically increasing overall prescription spending: our aging population.
According to The Kaiser Family Foundation, in 2004, 92% of the population aged 65 or older incurred a prescription expense, compared to 59% of the population under the age of 65. Couple this with the fact that the percentage of the population aged 65 or older will jump from roughly 12% in 2000 to nearly 20% by 2030, and it can be projected that the number of Americans purchasing prescription medications will continue to steadily rise over the next two decades.
As private insurers and retailers have proven, a shift towards generics can help to curb overall prescription spending – as evidenced by recent downward trends. Perhaps the federal government should follow suit and enact a national DAW mandate, requiring pharmacies and retailers in all jurisdictions to substitute for approved generics without express physician consent to the contrary. At the very least, this measure should be considered for prescriptions dispensed to the 65 plus population. Apart from the overall cost benefit, less out of pocket expense for the consumer would only increase compliance in this demographic, another critical piece to reigning in health care costs overall.
I’ve said before that I think tiering of doctors and hospitals could have some positive effect in reducing utilization of healthcare services and steering patients toward the most efficient and cost-effective providers. What I don’t understand from your original post on this is how a powerful hospital group like Partners can get away with refusing to sign a contract that called for differentiated patient co-pays among hospitals. It’s bad enough that they use their market power to extract significantly higher payments from payers than other hospitals in the region receive for similar services and comparable quality. Insurers and self-insured plans should be free to determine patient co-payments and out-of-pocket maximum limits.
For hospital services, even an extra $500 or $1,000 of co-pay exposure could be enough to get patients’ attention. Insurers should, presumably, be able and willing to make exceptions for treating diseases like cancer or the need for heart bypass surgery or an organ transplant at hospitals that have earned a regional Center of Excellence designation for those conditions. Perhaps this is another area where regulators need to rein in the behavior of the state’s most powerful hospital and physician groups.
I like Ian’s comment about the aging population and their use of prescriptions. In 2030, 20% of the population will be over 65 with 92% of them using prescriptions for the additional 8/10 years of their lives (average age of death being 72 in US and 74 in MA). Serious indeed but that’s nothing compared to the 34% of children between ages 2-18 who are overweight or obese and who need and will continue to need prescriptions or other more serious (costly) medical treatments for the next 56-72 years of their lives. At the end of the day, a healthier population and lower health care costs will come from a change in our collective behavior. If we put as much energy into prevention as we put into trying to better manage hospital costs, health plan costs, prescription costs, physician costs, we could lessen the need for any of those services. We need to educate people about nutrition, exercise and other good lifestyle choices- individual responsibility for one’s own health. Our health care challenges are not going to shrink just because budgets are. Increasingly, we’ll need to be creative to come up with effective but inexpensive solutions. Promoting healthy behaviors in the workplace and in schools is an idea that costs very little money. As obesity and other chronic illnesses grow and budgets shrink, we’ll need new solutions — prevention is one of them.
Prescriptions are viewed as a big cost driver because it is the most widely used benefit. On average across all member, people fill around 14 Rxs per year. The reality is that only about 60% of people get one prescription so if you change the denominator to be utilizers (vs members) then it would be more like 25 Rxs per year.
Additionally, members understand copays and feel them going up right away. So, although drugs aren’t the primary drivers of healthcare trend, they are frontpage news and top of mind for many people.
Very good comments all. Thanks. George, the other issue with drugs - and I think you make a number of excellent points about why the cost of drugs might be more noticeable to consumers than other health care expenses - is the lack of public disclosure around prices for everything else. At least people know how much medications cost when they access them. Not so for the the other 85% of health care services.
Ian and Susan - your points about diet and exercise NOW as alternatives to drugs and other therapies LATER is a good one. There was a very good op-ed in the Wall Street Journal about the same issue last week - which pointed out that many chronic illnesses have more to do with lifestyle choices than anything else.
Bob - At some point, I think other parts of health care will be subject to the same scrutiny as Rx - but we need more public disclosure on price and performance first.
Thanks for writing.