One Method Is to Get Americans to Take Their Medicine
As we reported in our last newsletter, U.S. health care spending has been rising between 5% and 6% lately, compared with inflation of a little under 2%. That rate is forecast to prevail for the next decade.
While such increases raise serious concerns, this is not the 1970s, when health care spending rose an average of 12% annually, or the 1980s, when the average was 10%. By the 1990s and the early part of the 2000s, increases had dropped to between 5.5% and 6% a year and dropped to 2- 3% between 2008 and 2013. Since then, in part because of the extension of health benefits to more Americans, we’re back to the levels of the ‘90s and early 2000s.
Bending the cost curve has become an important political issue and a major challenge for health care policy makers and practitioners. We need to reform the system to constrain costs and make sure are spending on the right priorities, but, first, it’s important to understand the real reasons for those higher costs.
The historic figures come from the Peterson-Kaiser Health System Tracker, a respected joint venture launched two years ago by the Peterson Center on Healthcare and the Kaiser Family Foundation. The Tracker also provides a lot of edifying charts. One of them shows the average out-of-pocket costs paid by Americans for physicians, hospitals, and prescription drugs.
Individual Americans pay far more out of our own pockets for drugs than for hospitalization (twice as much in 2015) – even though total drug spending, by all payers, is less than one-third of total hospital spending: about $300 billion vs. about $1 trillion.
The reason for this disparity: insurance companies construct their policies so that they reimburse more hospital costs than drug costs. From a long-term health policy perspective, this approach makes little sense because it discourages drug spending while encouraging hospital spending.
Smart strategy would do the opposite. Spending on drugs often prevents spending on hospitals.
For example, by regularly taking medicines that hold down cholesterol or blood pressure, patients reduce the chances that they will end up in a hospital or nursing home with a heart attack or stroke. A 2005 study by Michael Sokol and his colleagues, titled “Impact of Medication Adherence on Hospitalization Risk and Healthcare Cost,” published in Medical Care and cited by 1222 other researchers, examined 137,000 patients with health insurance and found:
For diabetes and hypercholesterolemia, a high level of medication adherence was associated with lower disease-related medical costs. For these conditions, higher medication costs were more than offset by medical cost reductions, producing a net reduction in overall healthcare costs.
For diabetes, hypercholesterolemia, and hypertension, cost offsets were observed for all-cause medical costs at high levels of medication adherence. For all 4 conditions, hospitalization rates were significantly lower for patients with high medication adherence.
These findings, repeated in other studies, such as one by P. Michael Ho, et al., titled “Effect of Medical Nonadherence on Hospitalization and Mortality Among Patients With Diabetes Mellitus,” in JAMA Internal Medicine, are simply common sense.
Overall medical cost savings per additional dollar spent on medicines range from $1 to $37, depending on the medicine and the disease. So it’s clear that taking drugs reduces costs elsewhere in the system.
People Don’t Take Their Prescription Drugs
Unfortunately, non-compliance is rampant. A study of more than 75,000 insured patients found that 30% failed to fill a new prescription. Another study found that 50% of prescriptions were either not filled or were not taken as directed. The cost burden of poor compliance and non-compliance is estimated as high as $290 billion a year – roughly the same amount spent on all prescription drugs.
If we really wanted to hold down health care costs, we would put more effort into finding ways to get people to fill prescriptions and take their medicine. A better insurance benefit structure, with lower co-pays and deductibles goes a long way.
But there are also methods to make it easier to comply. One is called “medication synchronization.” The idea is that pharmacists make an appointment with a patient to pick up all medications at the same time -- once a month or every 60 or 90 days – and to discuss other health issues, including smoking cessation, over-the-counter medicines, and vaccination requirements.
Patients in Part D Medicare plans have the opportunity to engage in medication synchronization with the approval of their pharmacies or physicians. The Centers for Medicaid and Medicare Services found that costs are minimal and overall health care savings are in the billions of dollars. A recent article in the American Journal of Managed Care found that medication synchronization programs…
have been shown to increase medication adherence in patients taking chronic medications. These programs were shown to have a significant cost-benefit for healthcare payers by reducing medical utilization and costs. Payers should consider supporting the provision of these programs in community pharmacies.
Adult Vaccinations Hold Down Costs
A second way to lower health costs is through adult vaccinations. While vaccination rates for major diseases are 90% or more for children (in large part because schools won’t let unvaccinated kids attend), the rate for adults is much lower. Only 50% get a flu vaccination annually and only 20% of even high-risk patients get a pneumococcal vaccine. The result is a higher rate of lost working time, hospitalization, and death.
A study by Sachiko Ozawa of the University of North Carolina and seven co-researchers, published in the November issue of Health Affairs, estimated that adults who are unvaccinated for 10 diseases for which vaccines are available and recommended were responsible for a $7.1 billion “economic burden” in the U.S. in 2015. The majority of that cost is for inpatient expenses.
Recent research shows that people are more apt to get vaccinated if high levels of people in their communities are getting vaccinated. A recent study found that an increase in the vaccination rate in a community from 10% to 90% has the same effect on utilization as a decline in vaccine price of 50%. But how to encourage vaccinations?
One way is for state health societies to disseminate a vaccine schedule for adults in public service announcements. Another is for businesses to encourage their workers to be vaccinated by giving them time off or inviting medical personnel into the office to perform the vaccinations.
Broaden the Aperture
The key is to broaden the aperture of the discussion of health costs. It is a complicated subject. Simply saying that this drug or that procedure is expensive, doesn’t address the real issues. The road to meaningful reform begins with an understanding of the facts and the options. That is the aim of this newsletter.
The U.S. Can't Reform a Broken System Without Understanding Which Parts Are Really Broken
Imagine a drug company discovers a cure for Alzheimer’s, a disease that currently afflicts more than 5 million Americans. According to the Alzheimer’s Association, “Alzheimer’s is the only disease among the top 10 causes of death in America that cannot be prevented, cured or even slowed.” But just assume that you’ll be able to take a pill every day for three months and your illness is obliterated, with few side effects – the same results that new drugs provide for Hepatitis C.
Now imagine the Alzheimer’s drug is priced at $20,000 for a three-month supply of pills and that all 5 million people with the disease will benefit and that they all take this cure in a single year. Total cost: $100 billion. Total prescription drug costs today are about $325 billion. So in our scenario, a new Alzheimer’s drug, in a single year, would increase total spending on medicines by about one-third.
Imagine the public outcry! But also imagine the public benefits. Alzheimer’s and other dementias will cost the U.S. $236 billion in 2016 alone, and that figure does not quantify the suffering and death the disease brings.
As we pointed out in our first newsletter, If a drug were invented to prolong the onset of Alzheimer’s by just five years, the estimated savings to the health care system would be $367 billion. An immediate cure would save a multiple of that figure.
Our little scenario points out the distortions involved in looking at drug spending increases without context. Drug spending does indeed rise every year, at times at a greater rate than inflation, but it’s not the same drugs with the same benefits.
Sovaldi and other cures for Hepatitis C have boosted aggregate spending on medicines in recent years, but they have prevented spending in other parts of the health sector. A patient who is cured of Hepatitis C will probably not have to be hospitalized for a liver transplant, so the effect of higher drug spending in this case means significant reduction in the use of other more expensive interventions and overall healthcare costs.
New Report Shows U.S. Spends More Than One-Sixth of GDP on Health
This is important background for understanding new reports on health spending in 2015. Data from the CMS actuary’s office, published Dec. 2 in Health Affairs, show that overall U.S. health care spending was $3.2 trillion, or 17.8% of GDP. Spending was about $10,000 per American, an increase of 5.8% over 2014, which followed an increase of 5.3% in 2014 over 2013. One reason for the rise was simply that more Americans (91% of us in 2015, compared with 84% in 2010) are insured privately or by Medicare or Medicaid. Another reason was that the growth in spending for the most labor-intensive healthcare has been rising. Spending for physician and clinical services, rose 6.3%. Hospital spending grew by 5.6%.
Those are the big categories. Hospital costs are now more than $1 trillion a year, and physician and clinical costs are $635 billion. Combined, those categories represent half of all health-care spending.
What about spending on medicines? That $325 billion figure cited above is a rise of 9% over last year. “The increase,” writes reporter Rachana Pradhan, “was the result of higher spending on new drugs for conditions like hepatitis C and cancer, price increases for existing branded products, as well as increased spending on generics.”
A new study by the Health Care Cost Institute found that the prime movers in cost increases were anti-infective agents, and the biggest declines were in cardiovascular drugs. The trend in lower-cost generics has been dramatic. According to an article onGeorgetown Public Policy Review on Dec. 8, some 88% of all prescriptions last year were for generics, compared with 57% in 2004.
A report by IMS Health projects that spending on medicines will reach $370 billion to $400 billion by 2020, adding….
This growth will reflect increased spending on innovative medicines, offset by lower spending on brands that will lose market exclusivity over the next five years…. The prospects for additional innovative medicines becoming available for patients through 2020 are very bright. The late-phase pipeline holds 2,320 novel products, and an average 43-49 NASs [new active substances] are expected to be launched annually over the next five years.
The IMS report also says, “While brand price increases are expected to continue in the 10-12 percent range on an invoice basis, they will be significantly offset by rebates, discounts and other forms of price concessions.” In fact, reports IMS, net price growth in 2015 actually slowed to 2.8% as concessions by manufacturers increased.
Americans Pay More Out-of-Pocket for Drugs Than for Hospitalization or Doctors
A big reason that Americans feel the pain of drug prices is that insurance policies, are we pointed out in the last newsletter, are constructed so that the insured pay much more out of their pockets for drugs than for other kinds of health care. For example, according to CDC data, you pay 15% of the cost of medicines but only 3% of the cost of being hospitalized.
A single medical hospital admission now costs $17,689, according to the HCCI report. An outpatient emergency room visit now costs $1,863. Those high costs are precisely what pharmaceuticals often prevent.
But the key piece of context is this: Drugs represent 10% of total health care costs, compared with 32% for hospital spending, and 20% for physician and clinical services. The share of total costs represented by drugs has remained roughly the same since the 1960s. (These are CMS numbers, and they underestimate the impact of drug costs because they place drugs administered by physicians in the physician or hospital spending category. The all-in total for drugs is closer to 13.)
Cost Is the 'Most Urgent Health Problem'
On Dec. 7, a Gallup survey found that “cost” is the “most urgent health problem” cited by Americans, well ahead of “access,” in second place. Of those polled in an open-ended question, 27% picked cost as the top health problem, up from 17% in 2009. Cost finished far ahead of cancer, heart disease, and drug and alcohol addiction.
Yes, we spend a great deal on health care – half-again as much as any other developed country in terms of proportion of GDP. We get a lot for that money, but the system is clearly broken and badly needs reform. Before responsible changes can take place, however, policy makers and the public have to understand the true state of affairs today and make judgments based on facts, not emotion. This newsletter is an attempt to help.
Online newsletter dedicated to helping you understand the costs and benefits that sometimes lie obscured in our complicated health care system