October 26, 2016 at 5:00 am ET
As the great Sen. Daniel Patrick Moynihan once said, “Everyone is entitled to his own opinion, but not to his own facts.” Finally, the facts, in the form of data released in several new studies and systematic analytical reviews, are undermining the narrative that drug costs have been the main driver of rising health care expenditures and insurance premiums.
For years, despite published Centers for Medicare and Medicaid Services data in peer-reviewed journals by respected academic economists that pharmaceuticals consume only 10-14 percent of health care costs, a crowd primarily made up of insurers and pharmacy benefit managers (PBMs) have tried to blame the increase in health care expenditures and more importantly rising insurance premiums, on biopharmaceutical pricing. These efforts have intensified in recent years. In fact, for the past several years PBMs have annually announced a list of medicines they’re excluding from their national formularies as a way to combat these so-called healthcare cost trends.
Due to the intense interest in the topic of prescription drug costs, researchers began not only investigating the segmentation of healthcare expenditures (similar to what CMS has done for decades), but also studying the effect of each sector on insurance premiums and probing the health care cost driver trends. For example, Avalere Health, a leading healthcare consulting firm, released a paper in August which concluded that outpatient spending is expected to be the largest driver of premium increases in 2017, accounting for 29.9 percent of the increases. After outpatient services, you have spending on professional services (27.7 percent) and inpatient services (15.4 percent) driving up premiums before you even get to prescription drugs (14.3%). This is, in fact, the same pattern that we’re seeing in 2016 based on final premium data.
A paper released in September by the Progressive Policy Institute estimated that in 2014-2015, the increase in healthcare labor compensation of $64.7 billion is almost 2.5 times more than pharmaceutical spending growth ($24.3 billion) during that same period. The difference they claimed was due to rapid growth in healthcare employment and wages. The researchers at PPI also estimate that employment growth will continue to drive overall health care spending as the increase in healthcare jobs in the 12 months ending in July of 2016 was more than 500,000, well above the annual average of 226,000 for the previous 5 years.
Finally, a report published last month by the Altarum Institute evaluated year-over-year spending growth of various healthcare segments. For the 12 months ending in July 2016, spending for hospitals, physicians, clinical services, dental services and home health care grew faster than prescription drugs, which grew at less than 4 percent. So while all of the blame for increasing healthcare costs is being heaped upon the biopharmaceutical industry, the reality is that other segments are now growing at a much faster rate compared to drug expenditures.
However, the most telling cracks in the argument being made by insurers and PBMs about drug prices driving healthcare costs and ultimately premiums were illustrated by none other than the Consumers Union, which traditionally has not been a big supporter of the pharmaceutical industry. In a letter to the Chief Actuary, Division of Premium Rate Review for the State of California regarding the Blue Cross of California (doing business as Anthem Blue Cross) rate filing, Consumers Union states:
“For years now, the health plans have cited breakthroughs in the treatment of Hepatitis C as the cornerstone of their defense of astronomical prescription drug cost projections. Anthem is back at it again, for the 2017 plan year, basing its high medical trend projection in part on “high-cost drugs for treating Hepatitis C.” We agree that pharmaceutical costs, especially those of specialty drugs, pose a challenge to the promise of affordable healthcare. However, the line must be drawn when health plans such as Anthem continue to leverage headlines about high-cost drugs in order to artificially inflate claims projections.”
They also noted,
“Let us not forget that the sticker price of these specialty drugs is just that: a sticker price. And as anybody familiar with drug pricing will agree, health plans do not pay sticker price. What they do pay is generally aggressively negotiated down.”
In other words, drug costs are simply the excuse not the actual driver behind premium increases. We know that insurers garner significant rebates from the biopharmaceutical industry and that the prescription drug cost trends are not what you claim them to be.
Despite insurer and PBM propaganda undermining the most valuable intervention in healthcare, it is encouraging to finally see that data and facts are winning out. While PBMs, insurers and policy pundits will keep pushing their false narrative of the disproportionate impact of biopharmaceutical expenditures on overall healthcare costs and insurance premiums, it is important to reflect back on what the great Lee Corso always says on Saturday mornings when discussing a questionable college football pick or storyline, “Not so fast, my friend!”
Dr. Robert Popovian is the Senior Director of Pfizer US Government Relations. He has two decades of experience in the biopharmaceutical health care industry and has published and presented extensively on the impact of pharmaceuticals and health care policies on health care costs and clinical outcomes.
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