Drug Pricing: Public Health Implications
High Drug and Device Prices Drive Health Costs, Researchers Say
The high cost of drugs and medical devices may be to blame for rising U.S. health expenses - not the aging population.
By Susan E. Matthews
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TUESDAY, November 12, 2013 —If the U.S. healthcare system was its own country, it would have the fifth largest GDP in the world, according to a report in JAMA. Despite the fact that we spend so much, however, our health outcomes trail those of other developed nations. That's because we’re spending too much on drugs, devices and administration, a new report in JAMA suggests, while not doing what we can to make the healthcare market more cost-efficient.
Conventional wisdom is that increased costs are due to the aging of the population and demand for more healthcare services. Researchers at Johns Hopkins School of Medicine, the Boston Consulting Group and the University of Rochester School of Medicine joined forces to compile “all the relevant facts and figures” to understand just how the healthcare industry got to its present point, said study author Hamilton Moses III, MD, a professor at Johns Hopkins.
“The population aging is to some degree a misapprehension of the data,” Dr. Moses said. His team found that nearly two-thirds of healthcare spending is on people with chronic conditions who are under age 65, and that the cost of drugs, medical devices, professional services, and administration are the real drivers healthcare spending increases.
Surprisingly, Moses said, they found that healthcare spending, while still increasing, has tapered off since the early 2000s. Another trend the researchers noted was that since 1980, the amount that consumers pay out of pocket for healthcare has dropped by half.
“The consumer is marginalized because they share only 11 percent of the cost,” Moses said. Because their percentage of the cost is so small, they have less economic incentive to pick the lowest cost option, he added.
Shifting the Blame for Increasing Health Costs
This conclusion that the aging population isn’t as big a driver of healthcare costs was surprising, said Andrew Rubin, vice president, Medical Center Clinical Affairs and Affiliates at NYU Langone Medical Center in New York City. Rubin also noted that the United States has particularly high costs because “we do a tremendous amount of research on new drugs and new technologies to improve healthcare." Because this research is incremental, as a country the United States invests substantial amounts upfront for results that will pay off down the road.
Elbert Huang, MD, MPH, FACP, associate professor of medicine at the University of Chicago, agreed that U.S. costs are partially high due to innovation. “The world gets to enjoy the fruits of our labor and gets to take advantage of all of our investment,” he said.
He also noted that the JAMA report looked only at past data, and that the real cost of the aging population has yet to be felt. “It’s not the cost per person, but the cost of the whole population,” Dr. Huang said, adding that because the baby boomer population is still aging, it's not yet clear whether costs will continue to rise as a result.
The high cost of chronic illness, particularly in younger adults, also wasn’t terribly surprising, Huang thought. A person who gets diabetes in his or her forties is more likely to have health complications than someone who gets diabetes at age 80, he noted.
Many chronic diseases are preventable, said Moses, so preventing conditions like obesity, hypertension and diabetes should be a top priority going forward. Unfortunately, the financial incentives in the American healthcare system encourage doctors to treat sick people, rather than prevent illness.
Doctors Are Part of the System
Another finding from the report was that, much like with Congress, Americans like their individual doctors but dislike the overall healthcare system. This is in part because the healthcare system is complicated and difficult to understand, Rubin said.
“What they don’t realize is that the doctor is part of the healthcare system,” Huang said. For their part, doctors are trained to care for patients individually and not consider the larger healthcare system and costs when deciding the best treatment plan for one person, he added. In part because of this disconnect, the system continues to grow larger and larger.
The general approval for doctors individually has to do with the process of interacting with a doctor, which tends to be separate from dealing with purchasing insurance and the payment process, Huang said.
How to Bring Costs Down
The researchers recommended three different approaches to help drive down costs:
How patients can become more effective consumers “is the question for the next decade,” Moses said. The problem is that people are constantly asked to make healthcare decisions, but because most people with insurance don’t have a big financial stake in it, they don’t make health decisions like they do other financial decisions.
“It’s just not a normal economy,” said Huang. “Patients don’t know the price of the things they’re purchasing because they’re often shielded. There’s an information gap.”
To correct for this, consumers should be told the true cost of medical procedures, said Moses. For example, in Germany, benchmark prices are posted and used by consumers, which helps them understand their place in the decision-making process.
Physicians and other healthcare professionals must be willing to engage their patients in honest conversations about their choices, and patients should be willing to research their options, as well as their insurance plans, according to Rubin.
“Read your open enrollment materials — don’t just pick your same one as last year,” Rubin suggested.
Huang cited Consumer Reports as an example of an outside source that is starting to review medical devices and drugs so that people can make more responsible, informed healthcare choices.
“We assume that patients aren’t educated enough or don’t want to be involved, but I have found that even if patients say they’re not interested, when presented with the information the right way, they’re receptive,” Huang said.
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