One of the biggest topics in healthcare reform discussions right now is the rapidly rising costs of drugs, and in particular specialty drugs. This issue is one of the fastest drivers to escalating insurance premiums causing rate shock all across the group and individual market.
Individuals with high deductibles and organizations who provide insurance are feeling the pain the most. If healthcare costs are one of the things that is holding back economic recovery, then we need to get this under control to bend the cost curve.
How do the costs compare globally?
Pricing for drugs runs the gamut across the global marketplace. For example, pricing for a drugs for hepatitis C might be 100,000 in the United States and this is based upon a transplant costing 250,000 because it is cheaper. But is it really?
On America’s Healthcare Challenge recently, we spent an episode looking at this issue in depth.
According to Pramod John, CEO of Vivio Health, “in other countries the price for drugs are much lower and in some cases, developing countries are 1/10 of the same price.”
Compared to developing countries, the United states is 7-10 times the cost according to Mr. John. “The US is the only un-regulated market drug and there is no regulation on how prices are set and studies have shown that the US spends two times more per capita on healthcare than its closest competitor.”
Why is healthcare cheaper in other industrialized nations?
Yes, healthcare is lower in these countries, but the prices are much higher for everything else. Many nations pay higher taxes compared to the United States and may have shorter periods for drug approval. The real question the nation needs to ask is how come we pay the lowest prices for every category except for healthcare where we blow everybody else away.
What about the fact that we pay all this money for R&D for these for drugs, is that claim true or false?
This is one of the biggest talking points coming from drug industry because of the large cost and cumbersome approval process for new drugs. This is true, however, when you look at drug companies, they actually spend two times more on sales and marketing than they do on R&D. Therefore, it is more likely that consumers we are subsidizing marketing and sales.
Why don’t they promote the drugs and what they really do and who they actually work for?
Trying to change the system is difficult and begins with asking the right questions like. Why do we pay the highest price and create the most competitive market and according to John, Vivio Health “cracked the code of the pharmaceutical industry and exposed the fact that It is a large non-competitive industry similar to travel several years ago prior to the days of online purchasing of an airline tickets.”
According to John, “what we have discovered is that this is general mismanaged and they are not asking the question or following up on the right price.”
Here are some other fundamental questions they recommend adding to the conversation.
- Are you getting this drug at right price?
- Does this drug work?
- What is the outcome and side effects?
- What am I paying for and am I getting it at the best price?
Analysis and Commentary
There are currently 3 trillion reasons why the healthcare industry is not out there for your best interest. The industry is the size of France Gatekeepers in place like insurance company or PBM who are watching this.
Incentive structures are designed to favor these industries and not the consumer. As new incentives align post ACA, nobody knows what you pay because there are so many different kick backs. One example is a $10,000-20.000 price differential for a drug like Harvoni which treats individuals with liver problems. The fact that insurance is covering this for many people hides them from the true cost aside from deductibles and co-pays.
Furthermore, insurance companies are asking the question: how are we going to collect the funds required to pay for the service. As a result, premiums collected and claims are paid out.
The lower prices go, the less money insurance companies make because for the first time in American history, the ACA told an entire industry how much money it could make through the Medical Loss Ratio. With a certain amount of dollars needed for claims, they are limited to a percentage of what they can make.
As a result, they are incentivized to actually charge more, we are arguing about the wrong things and the consumer is being held upside down. What needs to be asked is how do we make sure we are not over-paying for these drugs. Additional treatments through new technologies and innovations will also be important.
We will continue to investigate this issue further on our weekly talk radio program, America’s Healthcare Challenge. Coming up this week is an enlightening and informative discussion on the impact of the Affordable Care Act on the employer group insurance marketplace. For more visit our Facebook page and “Like” for our latest updates.