By Joel White
Most would not be shocked to learn health care costs — and prices — are going up, not down.
The Department of Health and Human Resources recently convened a forum on the rising cost of prescription drugs. The nine-hour event featured discussions on a wide range of issues, from patient access to drug innovation. What was missing, however, was any serious discussion about the chief drivers of healthcare costs – and what effective solutions might look like.
Indeed, the HHS event seemed to be a response to hyper-politicized and isolated examples of greedy executives jacking up prices on old drugs. That was the focus of much of the event. But there’s no evidence that such behavior is widespread and even less evidence that competition in drug markets can’t cure rising costs. Attendees lamenting the price of prescription drugs were quick to trot out cherry-picked — or flat-out irrelevant — statistics.
For instance, HHS Secretary Sylvia M. Burwell opened the meeting by saying that “costs for medicines are up” and then pivoted quickly to the fact that “about 65 percent of spending on new drugs over the last two years was for specialty drugs.”
Absent any context, such statistics are deceptive. To be sure, drug costs are rising — but so is the overall cost of health care. Total medical spending in the U.S. rose by 5.5 percent in 2014, the same rate as retail drug prices.
But prescription drugs represent only a small fraction — roughly 10 percent — of national healthcare expenditures. That slice has remained remarkably stable, spanning all the way back to the 1960s.
Health plans aggressively negotiate discounts averaging almost 60 percent. Patients pay much less than the sticker price. Competition is alive and well — and it’s driving down drug prices.
Physician and clinical services, by comparison, account for roughly 20 percent of all health spending, while hospital expenses make up nearly one-third. These are the bigger threats to our healthcare system, both in terms of dollar and percentages. In fact, according to the latest projections, health spending will comprise a fifth of our economy by 2024, largely due to increased hospital costs.
So one has to ask why the Obama Administration hasn’t convened a forum on these vastly more expensive and less innovative components of our health system? Could there be politics at play?
Fixating on drugs makes even less sense in light of their positive effects on long–term health spending. Patients that follow their prescribed regimens often avoid hospital stays, surgeries and other costly medical interventions caused by complications.
Indeed, a recent study published in The American Journal of Managed Care discovered that improving drug adherence among Medicare patients with congestive heart failure saved the program $2.6 billion. More aggressive efforts to boost adherence could save Medicare as much as $22.4 billion over the next decade.
At the HHS event, there were occasional nods to the power of prescription drugs to lower total healthcare spending. But such admissions were overshadow by the widespread sympathy for federal intervention to bring down drug prices.
This is the wrong approach. If anything, we need more competition to drive down costs, not more government intervention that gets in the way. Addressing the vast back-log of drug approvals at the FDA would be a good start.
Prescription drug costs may be an easy target for politicians. But by making it almost the only cost issue, federal officials are turning a blind eye to the real drivers of healthcare inflation.
Joel White is President of the Council for Affordable Health Coverage.