Creating a Sustainable Healthcare System That’s Good for Patients and the Economy
A decade ago there was a marked reduction in innovation and productivity in drug discovery and development. Since that time the pharmaceutical industry has turned that around with medicines for cancer, heart failure, rare genetic disorders, a cure for hepatitis C, HIV, and vaccines.
Today my industry is on the cusp of new advances in immuno-oncology or therapies that target specific cancer types that may have the potential to turn cancer into a chronic condition and remedies like gene therapy for hemophilia that may hold the promise for one lifetime treatment.
The life-saving breakthroughs that the pharmaceutical industry have developed were made possible through new forms of collaboration and commitments that integrate the result of scientists and physician’s enterprise and ingenuity; improvements in biology; and the collective investments and commitments made by academics, research institutions, private investors and the pharmaceutical industry.
Even with these advances there has been a significant public discussion on the cost of healthcare and the difficulty that many people have being able to afford their medicines. I understand the stress this poses on individuals and families. Unfortunately, the actions of a few are creating a public perception that pharmaceuticals are the main driver of rising healthcare costs and a key contributor to a broken U.S. healthcare system. However, a closer look at the facts tells a different story.
Putting Healthcare Costs in Perspective
In the U.S. today we spend about 17% of our gross domestic product on healthcare. Drugs represent a small portion (2%) of GDP spending. The largest segment of healthcare spending (12% of GDP) is the cost of inpatient and outpatient services; however, the reality is patients pay disproportionately significantly more for their medicines than they do for services like ER visits, surgeries and hospitalizations. This creates an opposite incentive to utilize more expensive care further compounding the spending problem. For example, patients pay out of pocket on average only 3% of the cost of hospital care compared to paying 15% or more for drugs out of pocket. And consider that on average for individual and small group health plans, including those sold on the Affordable Care Act Exchange, drugs are responsible for just over $3 a month, or less than 20% of the growth of health care plan premiums in 2016. Drugs are expected to account for even less of the health insurance premium growth (15%) in 2017.
While it is true that specialty drug spending is growing; overall drug spending has remained a steady proportion of all health care, at approximately 13% of U.S. healthcare costs. It’s important to note that drugs are the only part of our healthcare system that has built in reductions in cost. Medicines get cheaper over time. For example, 90% of all prescriptions and 25% of all spending on drugs is for generics. Also noteworthy is that the price growth in branded pharmaceuticals in the U.S. went down from 5.1% in 2014 to 2.8% in 2015. At the same time overall healthcare costs rose approximately 5.5% in 2014 and in 2015.
Another common misperception is that the U.S. is an outlier when it comes to drug spending. Here too the facts do not bear this out. While the average spend on healthcare in other developed economies is lower than in the U.S. (17% vs 9% of GDP), the spend on drugs in those countries amounts to about 1.5% of total GDP, very close to the 2% percent of GDP spend in the U.S. What we get for that additional 0.5% spending in the U.S. is faster access to new medicines, longer survival for people diagnosed with cancer and a thriving pharmaceutical industry that supports more than 4.4 million jobs in the U.S. and creates $1.2 trillion in economic value.
To be clear, I fully understand that some drugs can be expensive. That said, the silos in our healthcare system resulting from the current insurance models unduly put the cost burden back on patients, causing higher co-pays and deductibles. This directly impacts the price we pay at the pharmacy counter and provides inadequate reimbursement for life saving medicines – the one part of the healthcare system that has often proven to provide the most cost effective outcomes. For example, the use of statins and other anti-hypertensive medicines can prevent millions of hospitalizations, deaths or the onset of more expensive conditions. Underutilizing treatments such as specialty medicines for targeted diseases and preventative vaccines can lead to unnecessary in-patient spending. Consider that ensuring patients take their hypertension medicine as prescribed for the full duration could save 1 million visits to the hospital a year or that expanding drug coverage in Medicare part D could lead to a 4.1% reduction in hospitalizations for COPD, diabetes and stroke. The effective use of medicine will bend the larger parts of the cost curve, namely the use of hospital in-patient and outpatient services.
Drugs, working in concert with other health and wellness tools such as screenings and primary care initiatives, in addition to significantly bending the healthcare cost curve can also create a system with better aligned incentives that will encourage value over volume of care.
Unfortunately, today we are left with an inefficient, fragmented healthcare system governed by outdated insurance models that are discouraging healthy people from enrolling, until they need care. This is no way to run a sustainable system.
Improving our Market-Based System
While there is not a magic fix that will improve the way we deliver and pay for healthcare…we can begin to mend our broken system by working together to develop solutions where…
- Providers are paid for making and keeping people well through incentives that reward improved health and efficiency.
- We have a market based insurance system that includes everyone and that offers affordable and good coverage so that all will sign up.
- We have a regulatory process that speeds approval of generic and innovative drugs to foster competition and accelerates patient access by expanding the use of expedited pathways in the FDA and finding solutions to improve competition in single source generics.
- We eliminate waste, fraud and abuse to provide some relief in the system while larger, more comprehensive changes are made.
- We have a system that accounts for both the benefits and costs in the long and short run…or said differently — a system that accounts for both sides of the ledger and looks at value gained for costs incurred.
Actions Government Can Take
We know the areas that are the biggest cost drivers are heart disease and conditions such as diabetes, cancer, mental health, and arthritis. Therefore, what appropriate actions can the government initiate through public policy to address some of these public health/ healthcare system challenges? Potential measures could include:
- Creating incentives for prevention, such as waiving co-pays for preventive care services, or reducing insurance premiums for people who take steps to improve their health
- Giving physicians, hospitals and insurers the flexibility to address patients’ needs such as transportation and nutrition, and then reward patients and their care givers for achieving health improvements such as losing weight or quitting smoking
Developing and implementing effective solutions will take all segments of the healthcare system agreeing to make changes. It will take Hospitals, Insurers, Pharmacy Benefit Managers, policymakers and the Pharmaceutical industry coming together to design an efficient market-based system that provides patients’ access and protects those that are less fortunate.
We will need to keep what’s working well and not fall into the trap of over compensating for what’s not working well by implementing austere solutions that put future innovation at risk.
While difficult, I am confident by working together we can create a market-based healthcare system that will allow innovation to flourish, that will serve patients, and that society will support so the American healthcare system continues to be the best in the world.
We owe it to patients to get this right.