To effectively evaluate any healthcare system, the true costs of the delivery of appropriate care must be understood (and the costs of not providing treatment). The following is an interesting article on the much-debated topic of Health Reform in America and the drivers of health spending — chronic conditions, hospital expenditures, etc.
Prescription drugs scapegoat for rising health care costs
Popular belief is that prescription drug prices are responsible for high healthcare costs. But the evidence contradicts that belief. In fact, prescription drugs have helped control total healthcare costs in recent years.
The Office of the Actuary National Health Expenditures reported prescription drug spending growth in 2007 reached a historic low of 4.9 percent, the lowest rate since 1963 and below the 6.1 percent rate of growth for healthcare overall. Hospitals (7.3 percent) and physician and clinical services (6.7 percent) helped drive the growth in overall healthcare spending. Prescription drug spending growth has declined in seven of the last eight years.
The cost of caring for people with chronic diseases represents 75 percent of all U.S. healthcare spending and is expected to remain the largest cost category for years to come. The national obesity epidemic, to cite one example, has led to an upsurge in chronic health problems. The use of prescription drugs to manage chronic illness tends to reduce medical spending by eliminating the need for surgeries or prolonged hospital stays. A study published in the journal Medical Care found that every additional dollar spent on drugs for blood pressure, cholesterol and diabetes reduces other healthcare spending by an average of $4 to $7. Similarly, the National Bureau of Economic Research found that Medicare saves $2.06 for every dollar it spends on medicines.
The facts argue against trying to curb overall healthcare expenditures by primarily focusing on cutting prescription drug spending. Such a misguided approach could have the unfortunate, unintended consequence of shrinking the amount of money available for future research and development. In practical terms, this means pharmaceutical companies might not have enough funds at their disposal — or an incentive — to invest in the work needed to find potentially life-enhancing, life-saving and cost- effective medicines.
Mahmud Hassan is a professor of finance and economics at Rutgers Business School. He is director of its Pharmaceutical Management Program and its Blanche and Irwin Lerner Center for Pharmaceutical Management Studies.