The United States spends more on health care than any other nation in the world. In Massachusetts alone, 37% of our gross state budget is spent on health care. High costs necessitate budget cuts towards other governmental services. (1)
Meanwhile, our national spending on health care approaches nearly 20% of our economy, which is about double what we see in other high-income countries. (2)
While it is commonly believed that high health care costs are due to unnecessary health care utilization (caused in part by a fee-for-service model), new data seems to suggest this is not as prominent a factor. (3) There remains the issues of overuse of low value care services that continues to require change, however, it does not contribute as major an effect on health care costs as previously assumed. In fact, it appears that a majority of the discrepancies in health care costs are related to high pharmaceutical costs, administrative costs and insurance costs. (3)
The pharmaceutical costs have many challenges in the US.
On it’s surface, the world’s top 20 selling medicines are 3 times more expensive in the US than in Britain. (4) U.S. prices are reported to be six times higher than in Brazil and 16 times higher than the average in the lowest-price country, which was usually India.
Manufacturers say decent returns are needed to reward high-risk research and that American prices reflect the economic value provided by medicines. They also point to higher U.S. survival rates for diseases such as cancer and the availability of industry-backed access schemes for poorer citizens.
However, there are also clear examples of inappropriate escalation of prices. With the consolidation of pharmaceutical groups, narrow opportunities for monopolizing the market for specific generic drugs have occurred. As a result, there have been issues related to the drastic rise of prices of generic drugs as well as a critical shortage of drugs in the last decade. One well known example is Pyrimethamine (an anti-parasitic), which increased from 13.50 to 750 dollars per pill overnight.
Given the nature of a for-profit market, it is difficult to imagine that companies wouldn’t take advantage of these opportunities to make profits. However, it comes with eventual consequences such as increasing the cost of care for individual consumers as well as private and public insurers and is mot sustainable.
But, what can be done about it? Better proactive regulation is one way of approaching this. The FDA has created expedited tracks to approve generic drugs to better balance the market and drive down costs. Interestingly, a group in Utah (Intermountain) is currently working on forming a US based non-profit company that will supply about 20 generic drugs to hospitals to help provide cost conscious care. (5)
Several major hospital systems, including Ascension, [then nation’s largest non-profit hospital group] plan to be part of this project, tentatively called Project Rx. (6) As of Jan 2018, 300 hospitals are included in the group and the VA has also expressed interest. (7)
It is important to look to other countries to see if similar models exist that have been successful. In most industrialized nations, universal health care has allowed for price control by the public through the government.
In India, average prices are significantly cheaper. This has, in part, been the result of a large generic pharmaceutical industry. While most of the industry remains for profit, the large competition and transparency of pricing has allowed for reasonable, affordable pricing of drugs.
India is the world’s largest exporter of generic drugs, with $16.4 billion sold abroad last year. In the first half of 2017, Indian firms got about 40 percent of new U.S. approvals for generics, up from 35 percent just a year earlier, and with a wider base of companies than ever before taking part, according to FDA data analyzed by Bloomberg News. (8)
In the first half of 2017, Thirty-two different Indian firms received U.S. approvals to sell new generics — almost double the number from two years ago. The approvals came as India’s top 10 drugmakers grew their share of the U.S. generics market from 14 percent in 2010 to about 24 percent. (8)
On its surface, Project Rx seems to be a laudable effort to do good. While there are financial incentives for them to push the industry to cut costs for their hospitals, by maintaining a non-profit approach, it is more likely to succeed in it’s task of bringing down healthcare costs. While there are several issues to tackle to make health care more affordable, chipping away at some of these issues one at a time will eventually get us there. What is still unclear, however, is the downstream effects this may have on pharmaceutical research and future drug development.
What are your thoughts on Project Rx and the pharmaceutical industry?
2. Papanicolas I, Woskie LR, Jha AK. Health Care Spending in the United States
and Other High-Income Countries. JAMA. 2018 Mar 13;319(10):1024-1039. doi:
10.1001/jama.2018.1150. Erratum in: JAMA. 2018 May 1;319(17 ):1824. PubMed PMID:
5. Liljenquist D, Bai G, Anderson GF. Addressing Generic-Drug Market Failures –
The Case for Establishing a Nonprofit Manufacturer. N Engl J Med. 2018 May
17;378(20):1857-1859. doi: 10.1056/NEJMp1800861. PubMed PMID: 29768140. [https://www.nejm.org/doi/full/10.1056/NEJMp1800861]5.