Pharmaceutical Spending Lowers Overall Medical Costs, Study Finds
Despite the high cost of prescription drugs, many medicines are "paying for themselves" in the form of shorter hospital stays and improved overall health, the AP/Milwaukee Journal Sentinel reports. With Congress expected to debate adding a prescription drug benefit to Medicare and consumer advocates lobbying for tighter regulation of pharmaceutical industry profits and marketing, the AP/Sentinel reports that health care economists caution lawmakers to examine the "value behind the [drug] price tag." According to a study appearing in the September/October issue of Health Affairs, pharmaceuticals are the "cheapest weapon" against increasing medical costs (AP/Milwaukee Journal Sentinel, 9/6). The study found that pharmacy expenses can "offset" other medical costs, and while researchers did not find "sufficient data" to prove the theory conclusively, study author, J.D. Kleinke, president of Health Strategies Network, suggests at looking to the "broader changes in ... medical spending" to reveal the value of pharmaceutical advances. For example, while pharmaceutical spending rose from 5.5% to 8.5% of total medical spending during the 1990s, hospital expenditures dropped from 37% to 33% during the same time period. In describing how pharmaceutical spending lowers overall medical costs, Kleinke divides prescription drugs into six categories.
- Fast pays: These "expensive" drugs lower short term medical costs. For example, anticoagulant therapy for a stroke costs $1,095 annually, while lifetime costs for a "severe" stroke average $100,000.
- Slow pays: These drugs take "several years" to lower medical spending. Raloxifene, a type of selective estrogen receptor may reduce osteoporosis and prevent "costly" hip fractures in seniors, but only if taken "years" before symptoms appear.
- Narrow pays: These drugs, such as cholesterol drugs or vaccines, lower costs for some "narrow clinical subpopulation" but do not decrease medical spending overall.
- Diffuse-pays: While increasing medical costs, these treatments lower nonmedical costs. Nonsedating allergy medications, for example, treat "inexpensive" medical conditions while keeping patients productive in the workplace.
- Pay-me-laters: Such treatments are like "smoking in reverse," as they improve health and short term costs, while "guaranteeing" higher aggregate costs in the long term. Treatments for cystic fibrosis, multiple sclerosis and possibly HIV/AIDS fall into this category.
- No pays: These drugs do not save money but improve lives and the "human experience." Examples include treatments for acne, toenail fungus or overactive bladder.
Health Affairs Contents
Selected articles appearing in the September/October issue of Health Affairs are summarized below. Kleinke's article, "The Price of Progress: Prescription Drugs in the Health Care Market," appears on page 43.
- "Is Technological Change in Medicine Worth It?": Examines the impact of technological advances in medicine relating to heart attacks, low birth weights, depression and cataracts and determines that while technology increases aggregate medical spending the benefits "must be greater than the cost."
- "Physicians' Views of the Relative Importance of Thirty Medical Innovations": Reports the result of a survey of 225 general internists on the importance of technological innovations and finds that MRI and CT scans have the most impact on patients.
- "The Price of Progress: Prescription Drugs in the Health Care Market": In response to call for price and utilization control for prescription drugs, the article concludes that federal and state laws should encourage "better" health care coverage, rather than rationing use or capping prices.
- "Evidence-Based Coverage Policy": The article discusses how insurers, including the government, use "evidence-based approaches" in making coverage decisions and how such policies can "direct medical resources toward effective care."
- "Perspective: Improvements in Medicare Coverage of New Technology": Written by two CMS officials, the article describes changes made to the process Medicare uses in determining whether or not to cover a new technology.
- "Insurance and New Technology: From Hospital to Drugstore": The article investigates the shift in care from an inpatient to an outpatient setting and concludes that private insurers have handled the resulting administrative changes better than Medicare.
- "The Shifting Functional Balance of Patents and Drug Regulation": With increasing drug prices resulting in calls to reduce the value of patents to pharmaceutical companies, the article discusses how patents will be used in shaping future policy.
- "Perspective on the Pharmaceutical Industry": The article examines the push to expand prescription drug coverage by taking an economic view of how the supply side of the pharmaceutical market relates to the demand for prescription drugs in the United States.
- "The Ethics of Pharmaceutical Benefit Management": Discusses how pharmacy benefit managers may ethically control pharmaceutical spending by promoting the use of formularies and step therapy.
- "Improving the Quality of Health Care: Who Will Lead?": Examines the debate over how to improve the quality of care in the United States by outlining current problems, detailing obstacles to improvements and establishing the need for leadership in overseeing positive reforms.
- "Job-Based Health Insurance in 2001: Inflation Hits Double Digits, Managed Care Retreats": Uses survey data from 1,907 firms to determine that despite recent premium increases, the percentage of firms offering health coverage to their workers has remained "statistically unchanged" and the current labor market is shielding employees from the higher cost of coverage.
- "Managed Care and Market Power: Physician Organizations in Four Markets": Analyzes how physician organizations have developed and their impact on cost savings for other physicians, health plans and hospitals.
- "Trends: The Impact of Pipeline Drugs on Drug Spending Growth": Investigates the annual growth in spending on pharmaceuticals and concludes that an understanding of drugs currently under development is required to properly estimate and project future drug pricing trends.
- "Trends: The Link Between Gross Profitability and Pharmaceutical R&D Spending": Reviews financial data from the pharmaceutical industry and finds that as profits increase, companies' spending on research and development, as well as on marketing increases.
- "From the Field: Probing the Link Between Gross Profitability and R&D Spending": A critique of the previous article, the essay notes that the analysis neglects to study the impact profits have on future research and development expenditures, which is "more dynamic and complex" than realized by the first article.
- "From the Field: State Pharmaceutical Assistance Programs for Older and Disabled Americans": Examines expenditures by Medicare beneficiaries and the states on prescription drugs in an effort to provide policymakers information in the coming debate over Medicare reform.
- "Are the Benefits of Newer Drugs Worth Their Cost? Evidence from the 1996 MEPS": Studies spending habits on the newest prescription drugs and determines that using "newer drugs" tends to reduce spending on all other types of "nondrug" medical treatments.
- "Growth in Prescription Drug Spending Among Insured Elders": Examines the rise in prescription drug use among seniors with insurance and finds that as the use of brand name pharmaceuticals increase, elderly patients are likely to continue using prescription drugs, which may require "considerable drug management."