April 20, 2017 at 5:00 am ET
A common expression used when computing data is “garbage in, garbage out,” or GIGO. The term refers to the fact that computers operate logically; thus flawed or nonsensical input data produce nonsensical outputs or findings. This principle can also apply to the development of public policy positions. The premise is that a policy is unsound if the arguments for its creation are flawed. Unfortunately, unlike flawed computations, policies do not have a reset button. It can be years or decades later before problems arise, observations are made and changes are implemented. This lag time between flawed policy and possible resolution is even more troubling when it comes to health care policies since they can impact an individual’s health or life. Nevertheless, the GIGO principle is alive and well when it comes to many current policy debates around drug pricing.
For starters, state policymakers keep referring to double-digit price increases for biopharmaceuticals as a reason to take action. However, the percentage increase they point to is not the actual increase in price incurred by the health care system since it does not take into consideration the considerable rebates and discounts offered by the pharmaceutical companies. For example, three of the largest pharmacy benefit managers that manage close to 75 percent of all prescriptions in the U.S. have, in the last month, reported that their year-over-year net price increase in 2016, after all of the rebates and discounts were taken into consideration, was approximately 2.5 percent.
State policymakers do have an expert in their own state who can easily explain the differences between list price and final cost — the state’s Medicaid administrator. According to the latest published data from Medicaid and the Children’s Health Insurance Program Payment and Access Commission, gross fee-for-service Medicaid expenditure ($21.4 billion) for drugs was reduced by 67 percent (to $8 billion) after the application of federal and supplemental rebates in 2015. Perhaps they should ask the administer to come in and explain what happens to all of the rebates and what is the true cost of a medicine after all of the concessions are calculated.
Next, state policymakers try to make the argument that drug costs contribute to increasing health care expenditures or that drug spending growth outpaces other health care segments, and they feel obligated as stewards of state budgets to take action. However, a quick check of the facts sheds some light on the myth behind their argument. For the past 17 months, ending in January 2017, data published by the Altarum Institute exhibits that prescription drug cost growth is below national health care expenditures and trails spending for hospitals and physician/clinical services. The truth is that net spending for “brand name” medicines constitutes just 7 percent of total health care costs in the U.S. — the same as it has for the past several years. In addition, over several decades,peer-reviewed research has confirmed that appropriate use of medicines is responsible for reducing overall health care costs through the reduction of more expensive services such as hospitalizations. We should all be asking lawmakers how they plan to address the remaining 93 percent of health care costs. If as a society we are serious about health care cost savings then the focus of our elected representatives ought to be on more than just pharmaceutical spending.
Finally, policymakers are using taking action on drug prices because they have been told that pharmaceutical expenditures are responsible for the ever-increasing insurance premiums in the U.S. Again, the facts don’t bear this out. Pharmaceuticals were responsible for only $3.29 of the average premium increase of $25.26 in 2016 (approximately 13 percent), which was less than taxes/fees ($5.12, ~20 percent) and hospital/professional services ($14.12, ~56 percent) according to Avalere Health. The facts aren’t as sexy as the truth, however, and the rhetoric regarding drug costs driving up premiums continues to echo through state capitals across the country.
Managing increasing health care costs is an important societal issue that policymakers need to pay attention to. However, policymakers can only implement effective solutions by utilizing correct data in order to assess the root cause of the problem. Addressing a problem based on the wrong facts will provide nothing more than false hope and potentially poor outcomes for patients. GIGO is no way to undertake serious health care cost reform.
Robert Popovian is the vice president of Pfizer U.S. 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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