By Kenneth Thorpe
Massachusetts is considering a law that would enable state officials to impose limits on the price of certain medications. If passed, the law would make Massachusetts the first state to cap drug prices. But it might not be the last. Pennsylvania, New York, and North Carolina are considering similar bills.
The push for price controls comes after a wave of stories that purport to show that prescription drug spending has skyrocketed, causing overall health-care costs to increase unsustainably. Such stories are misleading. Drug prices are not the main factor driving up the cost of health care in America today. Medicine is supposed to be evidence-based, so let's look at the facts.
Americans will spend $328 billion on prescription medicines in 2015. That sounds like a staggering number, but it represents just 10.1 percent of health-care spending. That percentage hasn't changed in six decades. In 1960, according to the Centers for Medicare and Medicaid Services, prescription drug spending represented just under 10 percent of total healthcare spending.
Of course, prescription prices have increased. But so have prices for almost all other medical services. We're still spending about 10 cents of every health-care dollar on prescriptions. Federal actuaries don't expect that to change over the next decade.
So if prescription drug spending isn't driving costs, what is? The growth in hospital spending accounted for a third of the growth in national health-care spending from 2014 to 2015, compared with 14 percent linked to increased prescription drug spending.
Drug prices are often subject to a kind of sticker shock that other forms of medicine are not, in part because of the way health care is paid for. The share that patients pay for some brand drugs and specialty medications is typically higher than that for doctor and hospital visits. So when a patient is confronted with the cost of an innovative drug, he is much more likely to feel the pinch.
It is true that the newest and most effective drugs cost more than those that have gone off patent, allowing generic alternatives. But those prices reflect the ever rising costs of research. Bringing a new drug to market today costs a staggering $2.6 billion. And if that cost can't be recouped, we will all suffer from a dearth of new pharmaceutical treatments.
Our biopharmaceutical industry is increasingly innovative. The Food and Drug Administration approved 51 new therapies last year, the most since 1996. And 41 percent of new compounds were "first-in-class" medicines, meaning they treat a disease in a distinctly new way.
Total health-care spending is not driven by these new drugs, but by the enormous costs of treating chronic diseases. About 84 percent of healthcare spending goes toward the treatment of chronic diseases, and nearly half of American adults suffer from one or more of these - diseases like diabetes, hypertension, heart disease, and cancer.
Effective pharmaceuticals - whether they lead to a cure or simply to effective disease management - help save money on doctor visits, hospital admissions, and other interventions that may be even more costly. Effective prescription drugs thus often help hold down overall spending in ways that are not always immediately apparent. The patient who does not have to go back to the hospital after a successful course of treatment rarely makes headlines.
Some critics of American drug prices also point abroad, noting that prices are lower in Europe and Canada. These artificially low prices are the result of price controls that discourage investment and restrict patients' access to lifesaving medicines. European price controls are a major reason that U.S. researchers now invent close to 60 percent of the world's drugs - up from about 30 percent in the 1970s.
America's lack of price controls enables us to subsidize the rest of the world's drug research. That's unfair, but copying Europe's failed model will only lead to less innovation.
If lawmakers in Massachusetts and other states truly want to help patients, they should find more effective ways of preventing the rise of chronic diseases and treating patients with multiple chronic conditions.