The USA’s healthcare reform: the cost of prescription medicines

Keywords::

• CMS
• cost of drugs
• cost of medicines
• Donald Berwick
• healthcare
• malpractice
• prescription drugs
• prescription medicines
• rationing healthcare
• socialized medicine
• US FDA

“It’s complicated,” Meryl Streep, from the film ‘It’s Complicated’.

The USA spends close to US$2.5 trillion every year on healthcare. Healthcare spending accounted for 16.2% of the USA’s gross domestic product in 2008, up from 15.9% in 2007, according to a report by the Department of Health and Human Services. Of each dollar spent on healthcare, 31 cents goes to hospital care, 21 cents goes to physician services, 10 cents to pharmaceuticals, 8 cents to nursing homes, 7 cents to administrative costs and 23 cents to other categories such as diagnostic laboratory services, pharmacies, medical device manufacturers, and so on [101]. Medical debt is the principal cause of personal bankruptcy in the USA [102]. Healthcare costs continue to escalate.

Previous editorials have dealt with some of the root causes of this healthcare debacle: a vicious cycle of malpractice litigation that leads to the practice of defensive (litigation-preemptive) medicine, the measures taken and adjustments made by insurance companies in order to continue to be profitable, and the US FDA’s role in perpetuating the escalation of drug costs [1–5,103].

The cost of healthcare attributable to prescription drugs

Approximately 90% of elderly and 58% of younger Americans are taking prescription medicines on a regular basis. In the last 10 years, the number of prescriptions purchased in the USA increased by 39%, while the population only grew by 9% [104,105]. Retail prescription prices increased on average 3.6% annually between 2000 and 2009, much faster than the average inflation rate of 2.5% [106,107]. Pharmaceutical manufacturing was the most profitable industry in the USA from 1995 to 2002, and in 2008 it ranked third with profits after taxes of approximately 19% [108].

In spite of this, less than 10% of US healthcare expenditures can be attributed to prescription medicines [101]. If the cost of medicines could be reduced by 50% that would result in only a 5% cut in the $2.5 trillion spent annually in healthcare. Yes, the fraction of healthcare expenditures attributable to prescription medicines should be reduced, but clearly this is not the major factor in the healthcare debacle.

Factors influencing the number of prescriptions

The growth in the number of prescriptions has been influenced by a number of factors, including:

• • Patient access to an inordinate amount of information (much of it misleading and incorrect) via the internet;

• • The large number of advertisements via the media;

• • The marked increase in television and internet programs providing free ‘medical’ advice;

• • Growing peer pressure via Twitter, Facebook and other social networking sites;

• • Physicians overtreating and overprescribing in an effort to protect themselves from malpractice litigation.

Patients are requesting more medications from their physicians and physicians are overprescribing.

In a recent survey published in the Annals of Internal Medicine, 90% of physicians said that doctors overtest and overtreat to protect themselves from malpractice lawsuits [6]. The findings echo a recent Associated Press story in which many emergency room doctors said lawsuit fears are the main reason for overtesting and overtreating in the emergency room [7].

Factors influencing the cost of medicines

In most countries with socialized medicine, the price of prescription medicines is the result of a negotiation between the government and the pharmaceutical company. Basically, the company needs to agree to a ‘reasonable price’ for the medicine to be included in the national formulary and be made available to patients covered by that nation’s healthcare system. However, in the USA, the price is established by the company with a view to recovering research costs (including the expenses incurred in developing other medications that failed during development) during the period of time when there is still patent coverage and making a ‘reasonable profit’ for the benefit of investors and to allow for corporate expansion. As a result, medicines are generally more expensive in the USA than elsewhere in the world.

Development costs

In cancer drug development, it is generally acknowledged that approximately one of 50,000 chemicals or biologicals screened, one of 10,000 evaluated in the laboratory, and one of six entering clinical trials will eventually be approved. These attrition rates are real and so are the attendant expenses. Pharmaceutical companies must pay for these failed projects in order to succeed with the one that does attain approval. The development process is also time consuming. The average cancer drug takes 12 years to proceed from discovery to approval and 7 of these years are spent in clinical trials. At least a quarter of the overall development time is consumed by the regulatory process and requirements [4]. The FDA imposes some requirements that are overly strict and a few that are unnecessary. This bureaucracy delays development and substantially increases costs.

Other costs

Sales and marketing costs are the most important factors in determining the cost of medicines and usually exceed development costs. These include:

• • Establishing and maintaining a sales force;

• • Developing and sustaining a marketing (promotional) program;

• • Creating and managing a pharmacovigilance program as required by the FDA;

• • Establishing and operating a Phase IV medical group for postapproval clinical trials;

• • Managing the continued reporting requirements established by the FDA (adverse event, pharmacoepidemiology, annual and other reports);

• • Maintaining a worldwide database and library.

Under ‘general and administrative’ costs, the salaries and bonuses of the top executives are no different and are similarly high as in other corporations.

Conclusion

Yes, it’s complicated. There is no fast fix. There is no simple solution. Many countries have opted for the pragmatic approach: rationing and regulating the price of medicines; rationing healthcare. The USA is headed in the same direction. President Obama, sidestepping Congress, has appointed Donald Berwick (a professor at Harvard Medical School and one of the nation’s leading experts on improving healthcare quality while saving money) to head the Centers for Medicare and Medicaid Services (CMS). CMS oversees more than $800 billion in annual spending; approximately one-third of all healthcare spending. Getting these costs under control is crucial for the federal budget, but it is also significant in shaping overall healthcare spending: in terms of healthcare practices and reimbursement policies, as Medicare goes, so goes the private sector [8].

An advocate for socialized medicine, Berwick has praised Britain’s NHS as being “not just a national treasure; it is a global treasure.” An advocate for rationing healthcare, he said just last year, “The decision is not whether or not we will ration care – the decision is whether we will ration with our eyes open.” An advocate for socialism, he has stated: “any healthcare funding plan that is just, equitable, civilized and humane must – must – redistribute wealth from the richer among us to the poorest and less fortunate” [8].

And yet, there are other ways of addressing this healthcare problem.

Can’t we reduce overtreatment and overprescribing by:

• • Educating patients so that they will not be influenced by a barrage of frequently incorrect information from the internet and the media;

• • Capping awards for malpractice to a reasonable level rather than the inordinately high awards that are commonplace today;

• • Retraining physicians so that defensive medicine may become a thing of the past?

Can’t we decrease development time and cost for new medicines by:

• • Limiting or eliminating the FDA-imposed holds and other delays;

• • Doing away with unnecessary FDA requirements;

• • Requiring more efficiency and less bureaucracy from the FDA;

• • Establishing timely preclinical and clinical development paths for pharmaceutical companies to follow?

Can’t we decrease marketing costs by:

• • Eliminating or limiting direct-to-patient marketing;

• • Decreasing the size of pharmaceutical companies’ sales forces;

• • Reducing promotional programs while emphasizing educational programs;

• • Focusing Phase IV programs on those needed to evaluate new indications, adverse events, pharmacokinetics or mechanism of action?

All of the aforementioned measures are feasible and would result in a reduction in the cost not just of medicines but of healthcare in general. However, in order to make it happen a concerted effort would be required from government, the pharmaceutical industry, corporate America, the media, patients, and physicians. Unfortunately, we lack the leadership and the will to make it happen. It is more expedient, although not as humane, to simply ration medicines and healthcare. Rationing medicines and healthcare requires far less work and coordination.

Financial & competing interests disclosure

Antonio J Grillo-López is a member of the Board of Directors of ONYX Pharmaceuticals and of the Board of Trustees of the Hope Funds for Cancer Research; and consultant to Hexal, Optimer, and Biogen Idec. The author has no other relevant affiliations or financial involvement with any organization or entity with a financial interest in or financial conflict with the subject matter or materials discussed in the manuscript apart from those disclosed.

No writing assistance was utilized in the production of this manuscript.