Healthcare spending in the United States is now $3.5 trillion, or nearly $11,000 per person. While hospital care and physician services comprise the bulk of that cost, pharmaceutical prices are responsible for 10% of the total cost – to the tune of $333.4 billion or more than $1,000 per capita.
When we talk about ways to reduce healthcare spending, finding ways to reduce pharmaceutical prices is always a top priority. Why is this such a hot button issue? What steps are being taken? How can data and analytics help? Let’s examine in this week’s “Hot Topic” blog post.
U.S. has the highest pharmaceutical prices per capita
One of the reasons that the issue of pharmaceutical prices keeps coming up is that the U.S. pays significantly more per capita on prescription drugs than do other countries. The chart below from the Commonwealth Fund shows not only that the U.S. pays much more than do other high-income nations when it comes to pharmaceuticals, but also that the gap is widening over time.
Source: The Commonwealth Fund
Why does the U.S. pay so much more than other countries pay? It’s not necessarily due to volume – the U.S. actually consumes fewer drugs and more generics than do other countries. One major reason for the price discrepancy is that the U.S. pays significantly more for many “blockbuster” drugs, as shown in the graphs below.
Source: The Commonwealth Fund
Starting in the 1990’s, many new drugs came on the market, including Lipitor for high cholesterol, Advair for chronic obstructive pulmonary disease (COPD), and Humira for arthritis. Drug companies put billions of dollars into research and development every year. The drug companies say they need to recoup these R&D costs, but others charge they are being greedy and trying to pad the pockets of their executives and shareholders. Whatever the case, the end result is that consumers are paying high prices. And while many other countries have government price controls on pharmaceuticals, the U.S. does not. That means we end up paying the brunt of drug costs.
Initiatives to reduce pharmaceutical prices
The public cry to reduce pharmaceutical prices is growing, especially after headline-making incidents such as the massive price increase of EpiPens several years ago and the recent news that prescription drug prices have grown at five times the rate of inflation in the first six months of 2019. Disturbingly, a Kaiser Family Foundation survey found that nearly one-third of people taking prescription drugs haven’t taken their medication as directed (skipped doses, cut pills in half, took other non-approved drugs) because of the high price.
Recently, the Trump administration unveiled an initiative that would require drug makers to disclose the price of pharmaceuticals in TV ads. However, a federal judge just blocked that rule.
The administration is also preparing an executive order that would declare a “favored nations clause” for pharmaceuticals, meaning the U.S. would not pay any more money than the country that pays the lowest drug prices.
How analytics can help
While politicians tackle the issue of pharmaceutical prices, there are also ways physicians and hospitals can use analytics to reduce costs.
For example, Western Maryland Health System used analytics in its pharmacy to compare the outcomes of patients using IV acetaminophen to those using oral acetaminophen, and found there was no difference. Because of this, the hospital was able to significantly reduce the amount of IV acetaminophen it purchased, resulting in a cost savings of 78% or more than $200,000.
Similarly, physicians can use analytics to compare the outcomes of drugs, as well as the prices, and use that data to make more informed decisions with patients. This way, drug usage and prescription habits are driven by data instead of by the strength of the marketing functions of pharmaceutical companies.
There are many factors that go into the high cost of healthcare in the U.S. Pharmaceutical prices account for 10% of overall healthcare costs, but there’s a lot of attention being paid to the issue because prices of many drugs have skyrocketed in recent years, and rightly or wrongly, pharmaceutical companies are seen as being too focused on profits.
While the Trump administration and other politicians work on political avenues to curb pharmaceutical prices, hospitals and physicians should examine other ways they can benefit their patients. Analytics is one way they can gain more insight into data on drug outcomes and costs, and work with their patients to make more informed decisions.
What do you think about the high costs of drugs in the U.S.? I’d love to hear your thoughts in the comments section below.
Read other Hot Topic blog posts