In both the House and the Senate, a measure was recently
introduced to “allow American consumers, pharmacists and
wholesalers access to Food and Drug Administration (FDA) approved
prescription drugs at world market prices.”
How? By allowing the re-importation of pharmaceuticals from
Canada and other Western nations. As a means to control costs, this
approach is mistaken in principle.
There is no “world market price” for drugs because each country
is its own market. By blending the US market with the Canadian one
we won’t lower US prices, we will increase Canadian prices. None of
this debate over the cost of prescription drugs really matters in
any case as what we should be concerned about is the total cost of
care — drugs, primary and emergency care, chronic and tertiary
care.
A little more than a half century ago, Jonas Salk burst onto the
scene with a groundbreaking vaccine to eradicate polio in the
United States. The vaccine meant that thousands who might otherwise
have been stricken down by the deadly disease, or confined to iron
lungs in the vast polio wards of hospitals, would now live longer,
healthier lives.
When we think of medicine, we tend to remember dramatic changes
like Salk’s vaccine or Alexander Fleming’s chance discovery of
penicillin in 1928 — innovations that saved untold millions of
lives, but now belong to a long-gone past of miracle cures. Today,
stories about modern health care all seem to be about small,
incremental advances, like a cure for male-pattern baldness, a
remedy for ulcers, or a marginally improved AIDS treatment.
The impression is that the pharmaceutical industry is stagnant,
even as prescription drug prices skyrocket and public health
budgets strain under the burden.
Why should we unload our pocketbooks and public treasuries for
such small cures?
The simple answer is that the alternatives — costly emergency
room visits and hospital stays — are often vastly more expensive.
Frank Lichtenberg, a professor at Columbia University, is an
economist who has devoted a great deal of time to studying the
pharmaceuticals industry. In 1996, he found that the numbers of
drug prescriptions and hospital bed stays were inversely
proportional — that is, the more that doctors prescribed drugs for
treatment, the fewer trips to the hospital their patients
required.
On average, Lichtenberg discovered that writing an additional
100 prescriptions would mean 16.3 fewer days in the hospital. And
every additional dollar spent on prescription drugs reduces total
health care costs by $2.65 in fewer hospital visits.
Yet policymakers often narrowly focus on lowering the bottom
line of drug costs. This myopia regularly takes a heavy toll. In
1997, the U.S. Department of Veterans Affairs adopted the National
Formulary, a program that sought to control costs by restricting
coverage of newer, more expensive drugs in favor of older, cheaper
varieties. Lichtenberg reports that “the life expectancy of
veterans increased substantially before the National Formulary was
introduced…but did not increase, and may even
have declined, after.”
Or consider this: A 2004 study by the National Bureau of
Economic Research found that raising co-payments to reduce the use
of diabetes drugs would actually increase overall treatment costs
by $235 million. And the New England Journal of Medicine
recently reported that, although patients in health plans with
capped drug benefits spent 31 percent less at the pharmacy, that
savings was wiped out by increases in emergency department and
in-patient care.
The same holds true for countless other Americans who suffer
from chronic but treatable illnesses. Especially for those of
limited means, even a small increase in co-payments on necessary
prescriptions can force individuals to cut back on treatment
regimens for long-term conditions like asthma, diabetes, or chronic
heart failure. When that happens, more — and vastly more expensive
— visits to hospitals and the emergency room follow.
The main reason health care providers and government
bureaucracies make such myopic choices is something economists call
“silo budgeting.” Bureaucrats and government officials in the
health care industry focus on reducing costs in one category —
prescription drug coverage — without considering how their
decisions affect overall costs.
In a health care system where budgets for doctors, hospitals,
and drugs are managed separately, it’s difficult to justify
increased spending on drugs because the overall benefit — fewer
hospital stays — shows up on someone else’s budget.
We ought to be figuring out how to increase, not limit, access
to drugs. Broader formularies, lower co-pays, higher drug
expenditure allowances, wider access to new drugs, even at the
experimental stage.
The good news is that some people are leading the way. The
American Journal of Managed Care recently reported that mailing
service provider Pitney Bowes lowered out-of-pocket drug costs for
workers and family members suffering from diabetes and asthma, with
the result that “overall spending among these employees fell by
about 12 percent, primarily due to large reductions in [emergency
department] use and hospitalizations.”
Clearly, it’s time our health care providers abandon the
penny-wise, pound-foolish practices of the past. We need to make
sure our health care plans, both public and private, are designed
to give Americans access to the latest cures and the best
medicines. Doing that may not capture the imagination the same way
that Fleming or Salk did with their miracle cures, but it will
achieve results just as dramatic — lower costs and longer,
healthier lives.
