June 3, 2015 at 5:00 am ET
As John Adams said, “Facts are pesky things” – especially when they don’t reinforce your beliefs. And nowhere is that more of an issue than in the debate over drug pricing.
A new study from the Institute for Health Policy compares drug prices in four countries and points out that countries such as Germany, the United Kingdom and Australia have governmental regulations that help keep drug prices at “sustainable levels.” The study authors urge policymakers to “do something” to change the situation in the U.S.
The new paper is full of statistics. But, as the saying goes, statistics are like bikinis – what they show you is interesting, but what they conceal is essential. One thing the paper conceals is that the majority of OECD countries spend more on pharmaceuticals (as a percentage of healthcare expenditure) than we do in the U.S., 15.9 percent versus 12 percent. That ranks us 26th out of 34 OECD nations in pharmaceutical spending.
In Europe, Australia, and Canada, brand name pharmaceuticals tend to be significantly cheaper than they are in the U.S., largely because foreign governments impose stringent price controls on most drug sales. (The study conveniently neglects to mention that generic drugs are more expensive in Europe than in the U.S. And generic drugs represent 87 percent of all the drugs sold here at home.)
When it comes to new, innovative medicines for many serious and life-threatening diseases, government-dictated lower prices come with a very high price tag. Free health care like in Europe and Canada? Let’s look at the record. Government controlled health care is not free. It comes at great cost through higher taxes, wait times and denials of coverage. According to the OECD, the French pay about 20 percent more in income tax while Canadians, according to the Fraser Institute, wait an average of almost 18 weeks from a general practitioner’s referral to treatment by a specialist. In Canada about 22 percent of taxes go to the health system, and several provinces charge additional premiums.
Citizens in the U.K. pay 11 percent of each pound they make in weekly income, between £100 and £670 for the National Health Service (NHS). And then there’s an additional 1 percent of income over £670 a week. Although the copay for drugs is low, many drugs are not covered because they’re not considered cost efficient.
What can’t be overlooked (and is conveniently absent from the Institute for Health Policy study) is that price controls equal choice controls. And choices (or the lack thereof) have consequences.
Consider the facts:
Now consider the Affordable Care Act. Patients can access any medicine they need — as long as it’s on the exchange formulary. Sure, the ACA limits the degree to which insurers can charge higher premiums for sicker patients, but ObamaCare plans found a way around these rules: impose higher out-of-pocket costs for all or most specialty drugs. High co-pays effectively remove choice from the system for many patients.
The breakdown of Silver plans (the most popular category) is particularly revealing. In 7 classes of drugs for conditions from cancer to bipolar disorder, more than a fifth of these plans require patients to shoulder 40 percent of the medicine’s cost. And 60 percent of Silver plans place all drugs for illnesses like multiple sclerosis and rheumatoid arthritis in the “formulary tier” with the highest level of cost-sharing.
Nearly every Silver plan across the country, in fact, puts at least one class of drug exclusively in the top cost-sharing tier. In effect, this leaves patients with a given condition — whether HIV or Crohn’s disease — without a single affordable treatment option. Silver is the new black.
If we’re going to look to other healthcare models for solutions, we must uncover and study their problems. Healthcare is too important to allow reform by sound bite. “Drugs from Canada” is as much a false promise as “free healthcare.”
The Institute for Health Policy calls for policy makers to “do something” – and amen to that. What that something should be, however, isn’t to copy foreign schemes that trade transitory short-term cost savings for long-term patient care. It’s to support the continued innovation that saves lives and money – big money.
As Harvard University health economist (and health care advisor to President Obama) David Cutler has noted, “The average person aged 45 will live three years longer than he used to solely because medical care for cardiovascular disease has improved. Virtually every study of medical innovation suggests that changes in the nature of medical care over time are clearly worth the cost.”
“The challenge,” according to the PwC Health Research Institute, “may lie in targeting the patient most in need of the more expensive course of therapy.”
Drugs aren’t the cause of rising health-care costs; they’re the solution. Demonizing new treatments distracts from the real problem in U.S. healthcare: top-down cost-centric policies that focus on the near-term, short-changing long-term patient outcomes, endangering “sustainable innovation” by denying fair reimbursement for high-risk investment in research and development. (Research and development costs big even if a drug never makes it to market — and most don’t.) New treatments are a bargain. Disease is always much more costly. If we don’t reward risk taking on behalf of human health, both will shrink.
Referring to the Model T, Henry Ford famously said, “Any customer can have a car painted any color that he wants so long as it is black.” That worked out fine – until there was competition. Choice is the great emancipator. The same is true when it comes to healthcare, but it’s a lot more important.
Peter J. Pitts is president of the Center for Medicine in the Public Interest and a former FDA Associate Commissioner.