Republicans and Democrats missing the point on prescription drug costs


Bashing drug companies, long a bipartisan pastime, reached a fever pitch when President Trump recently announced a new federal rule aimed at slashing the prices Medicare pays for some lifesaving medications.

Republicans and Democrats alike are stuck on the idea that the best way to reduce our nation’s health care bill is to impose price controls on drugs. Pharmaceutical companies make for convenient scapegoats. But they’re not to blame for runaway health care spending. In fact, new medications are among the most effective ways to rein health spending in.

The United States spent $335 billion on prescription drugs in 2018, according to the most recent data from the Centers for Medicare and Medicaid Services. That may sound like a lot. But it represents just 9% of the nation’s health bill, which totaled $3.6 trillion.

In fact, prescription drugs account for a smaller share of overall health spending in the United States than in other developed countries.

The majority of our health care dollars — 53%, or nearly $2 trillion — go to hospitals and doctors.

Drug spending is also growing more slowly than spending on hospital and physician care. Annual prescription drug spending was 2.5% in 2018. Hospital and physician spending increased 4.5% and 4.1%, respectively.

What’s more, a tiny share of Americans accounts for the bulk of prescription drug spending. In 2016, according to a study by the pharmacy benefit manager Express Scripts, 0.3% of the U.S. population accounted for 20% of all spending on prescription medications. Some 83% of people in the study had annual drug costs of $1,000 or less — including the 32% who spent nothing.

Further, the value provided by a prescription drug often far surpasses its price. Consider Sovaldi, a hepatitis C medication developed by Gilead Sciences and approved by the U.S. Food and Drug Administration in 2013. Its initial cost was $84,000 for a 12-week course of treatment.

Sounds expensive, right? But Sovaldi actually cures many viral strains of hepatitis C. A one-time $84,000 expense could be much cheaper than the long-term costs associated with treating the condition, which can run in the hundreds of thousands of dollars and require a liver transplant. Thousands of people are currently waiting for donor livers.

Suddenly, Sovaldi looks like a good deal. It’s a money-saver as well as a life-saver. No wonder 60,000 Americans opted for it in the first 30 weeks it was available.

Prescription drugs also reduce overall health spending by empowering people to manage chronic conditions — and thereby avoid the need for costly acute care. One study found that over five years, a daily dose of statin for people at risk of cardiovascular disease reduced hospital admissions for vascular events by 20%.

That’s an argument for devoting more of our resources to prescription drugs, not less.

Simply put, prescription drug costs aren’t a problem. They’re a bargain. Cutting-edge pharmaceuticals have been saving lives and actually helping keep a lid on our nation’s health bill for decades.

Sally C. Pipes is president, CEO and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is “False Premise, False Promise: The Disastrous Reality of Medicare for All” (Encounter 2020). Follow her on Twitter @sallypipes.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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