Spending Less on Healthcare is Not Equivalent to Spending Less on Drugs
The Senate HELP committee held a hearing on April 16 about “making medicines more affordable”. Policymakers find drug price controls appealing; they are straightforward to target and implement relative to solving more complex problems like access to preventive care or integrating health systems. But a better question is, does spending less on drugs - about 14% of all healthcare spending in the U.S. - equate to spending less on healthcare overall? Chronically ill patients account for over 90 percent of healthcare spending, and medicines can delay or eliminate costlier treatments. An alternative approach would be to identify and tackle the costliest and lowest value parts of the healthcare system and identify missed opportunities for chronic disease prevention in or out of healthcare.
Healthcare is Interconnected
Rather than addressing the costliest aspects of prevalent diseases, policymakers are hyper-focused on individual components: drugs, managed care, PBMs, and hospitals, while interrogating each sector in separate hearings, as if healthcare weren’t deeply interrelated. Consider just a few examples: co-pays influence whether people get treatment, use of medicines reduces costs by avoiding hospital admissions, and drug prices affect investment in clinical development of treatments. It’s all interconnected.
Lower drug prices in other countries come from central purchasing and by denying or delaying access to treatments. In the U.S., newly approved drugs are typically covered in insurance plans within months, although co-pays and utilization management can still make it hard to get them affordably. Some denial of expensive drugs can be warranted, but other denials just result in lost productive time or hospital care. Blanket price controls, like the Inflation Reduction Act or Most Favored Nation don’t discriminate.
Other Countries Pay Less, At a Cost to Health and the Economy
It is true that other developed countries pay less for their drugs, and also medical care, than the U.S. The cost of coronary graft bypass surgery in U.S. government healthcare is $44,000 compared to $25,000 in comparable European countries. So why is the singular focus on the price of drugs in the U.S.?
Advances in medicine contribute to longer lives and less hospital or long-term care visits in conditions including Alzheimer’s disease, cardiovascular disease, vaccine-preventable infections, HIV, and cancer. While not all medicines justify their price, and real-world and clinical assessments can help identify those that do not, reimbursement commensurate with value for effective treatments cannot be achieved under systems with rigid price controls, such as those that import the lowest prices from other countries.
The costs are evident. The UK's NICE authority assesses medicines against a quality-of-life metric of $34,000 per year, a threshold updated for the first time in decades. Consider that UK patients with breast cancer waited two years after approval to get Ibrance, which extends progression-free survival, while patients with cystic fibrosis waited four years for Trikafta, a therapy that greatly improves lung function. Hepatitis C cures Sovaldi and Harvoni were initially rationed to only the sickest patients in the UK, leaving people with early-stage disease to wait and risk liver damage to be sick enough for treatment.
Japan's reforms and priority drug approval pathways have improved speed, but coverage and pricing policies, including price cuts and evaluation rules for novel modalities, contribute to delays or even withdrawals for some medicines. The results: not only do patients wait longer for approved medicines or never get access, but also clinical trials conducted in Japan have dropped by 73 percent since 2010. Reimbursement and investment in clinical study are connected.
Development Costs Matter
The U.S. is the world’s biggest market for prescription drugs; price controls mean not just delays, but cuts in investment for new and existing treatments. Antibiotics provide an example, where low reimbursement has resulted in little investment, putting the world at risk of an intractable infectious disease.
Proponents of price controls claim that you can make that pill for pennies, which you can if someone else were paying for all the development cost and failures. Investors fund a potential drug if it has promise of a successful financial outcome, considering that they may very likely lose their investment. Or they can shift capital to other sectors like artificial intelligence.
Consider that in Medicare, where 90% of beneficiaries have one chronic disease, a 1% increase in market size leads to a 2.8% increase in drug approvals. Conversely, making the Medicare market smaller, such as with price controls, means fewer new drugs developed for the older and disabled population served by the benefit.
A Choice We Must Make
While pushing down drug prices in the U.S. will almost certainly save money now, it comes at the cost of fewer new treatments. This is the decision: continue policymaking in silos with fewer new medicines or push for a system that treats and prevents chronic disease as cost-effectively as possible, for less spending and better health. This requires viewing healthcare as interconnected, not a collection of cost centers to be squeezed individually.
Kenneth E. Thorpe is the Robert W. Woodruff Professor in the Department of Health Policy & Management at Emory University and Honorary Chairman, Partnership to Fight Chronic Disease and Kirsten Axelsen is Senior Policy Advisor DLA Piper) Price Controls
