• Policy Antidotes to Rising Drug Prices
  • The Nature of Spanish Recovery
  • North Korea Isn’t Worthy of Overreaction

I was very disappointed at the recent health care fiasco. No, I’m not referring to the failure of Congress to replace or reinforce the Affordable Care Act (ACA). The fiasco I am talking about was my daughter’s earring mishap. She and a friend apparently improvised new openings in their lobes without professional supervision. A few weeks later, I came home to find her in pain from a faux rhinestone stud that had become embedded in the improperly sized hole. It took a trip to the clinic to unearth the darn thing.

The evening’s entertainment didn’t end there. To guard against infection, she was directed to take an antibiotic, which we had to acquire from a local pharmacy. Given my luck that day, it wasn’t surprising that a long line of folks were waiting for their prescriptions. The whole affair took nearly three hours of my life, which I will never get back.

In retrospect, one aspect of that sad episode should not have come as a surprise. America consumes a lot of pharmaceuticals (I’m referring here to the legal kind), so a long line at the dispensary is not uncommon. Given our demographics and the structure of the U.S. medical industry, it’s likely that those lines will be getting even longer in the years ahead. That trend, combined with other health care challenges, could test finances in both the public and private sectors.

We wrote a piece last fall entitled “U.S. Health Care Needs Major Surgery.” It detailed a system where costs are spiraling while patient outcomes are falling behind those of other countries. A significant and growing fraction of those costs are paid by the Federal government.

Pharmaceutical costs represent about 10% of total U.S. health care expenditures, or about $325 billion each year. The Center for Medicare and Medicaid Services (CMS) projects that the value of prescriptions consumed will increase by 6.3% annually over the next decade, well above the expected rate of general inflation and household income growth. The gap between U.S. per-capita pharmaceutical spending and the comparable level in other countries will almost certainly get even wider than it is today.

Some of the escalation is due to the aging of the Baby Boom generation. But costs per patient per year for medication are also rising rapidly. Policy makers are anxious to bend this cost curve, an effort which has support from 64% of Democrats and 60% of Republicans.

There are potential remedies under consideration. Unfortunately, none of them will be easy to achieve.

  • Pharmaceutical companies are introducing new medications to address ailments from hepatitis to cancer at an impressive rate. The good news is that these drugs offer hope and relief to patients suffering from these conditions. The bad news is that they often aren’t curative, while they often are very expensive. One particular medication costs nearly $100,000 for a 12-week course of treatment. These novel formulations account for a significant portion of the recent increase in drug costs.
Capping these costs, or limiting access to the drugs, would soften the blow. But pharmaceutical companies contend that an inability to recoup costs would discourage innovative research. (The United States does a substantial fraction of the world’s pharmaceutical development.) And it is difficult for societies to balance the costs and benefits of applying new treatments.

    • To provide incentives for research, the U.S. government allows drug companies to offer new products for several years before generic alternatives can be marketed. Periodically, though, manufacturers try to preserve their window of exclusivity by making minor changes to the chemistry or purpose of the medicine. Making generics available earlier and more readily would reduce collective costs.

    • Medicare Part D added a prescription drug benefit for participants just over 10 years ago. The program has proven popular, but the law prohibits the Federal government from negotiating lower drug prices for Medicare recipients. Essentially, the largest insurer in the country does not have the ability to leverage the buying power of a rapidly growing 40-million-patient pool. Removing this restriction could create considerable economies.

  • Drugs taken to treat chronic conditions generate immense annual costs. The conditions they address, such as diabetes and heart disease, have both genetic and behavioral roots. Programs aimed at improving collective wellness (through diet and exercise) could reduce the need for these medications.