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Here are a few things we know to be true.
● Healthcare spending in the U.S. is too high
● Drug prices in the U.S. are growing rapidly
● Drug prices in the U.S. are higher than they are in other parts of the world
Based on these facts, you’d think high drug prices are causing healthcare spending to accelerate. However, you’d be wrong. Healthcare spending is growing less than expected right now, largely because some excellent medicines are keeping people healthier than they otherwise would be (and thus reducing their need for more expensive medical care).
But don’t think that means it’s ok for drug companies to charge as much as they do for so many of their products. Here’s why.
Let’s start with the spending news. According to an analysis led by David Cutler (a health economist at Harvard), healthcare spending among elderly Americans grew less than expected in the last decade. Here’s a picture of that finding:
Analysis of data from the Medicare Current Beneficiary Survey and National Health Expenditure ... [+]
This is great news, but we should keep in mind that spending is still extremely high and growing.
But why is it growing less than expected? Cutler and colleagues break down spending trends by disease categories and find some fascinating patterns. Most importantly, they find that a huge part of the slowdown is due to a reduction in spending among people with cardiovascular disease—heart attacks, strokes, and the like. Here's a picture of that result:
Analysis of data from the Medicare Current Beneficiary Survey, National Health and Nutrition ... [+]
Why such a precipitous drop in healthcare spending among people with cardiovascular disease? A big part of the answer is medications to lower blood pressure and cholesterol. That’s right. The pharmaceutical industry makes some awesome products that not only improve people's health, but save money in the process. Hurrah!
But don’t conclude that the cost-saving benefits of cholesterol and blood pressure drugs justify the high price of many medications that have come to market in recent years. Right now, there’s lots of inexpensive medications to treat high blood pressure and high cholesterol, including a plethora of generic products. That means we can spend relatively modest amounts of money treating blood pressure and cholesterol and receive significant health benefits.
The same is not true for many other medications. Looking back at the second figure, it’s notable that the cost of cancer care grew faster than expected. That spending growth results in large part from new chemotherapies, most of which come to market at a price of more than $100,000 per patient. The same goes for drugs to treat CNS diseases—diseases of the central nervous system— which are also seeing higher than expected spending growth. That’s probably because drugs to treat diseases like Multiple Sclerosis are very high-priced. While many of these cancer and MS drugs bring important benefits to patients, the question remains: do the benefits justify the financial costs? Too often, the answer is no.
Inexpensive medicines play an important role in constraining healthcare spending. That doesn’t mean expensive medications will yield similar savings.
