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Controlling Healthcare Costs
 New medicines offer a solution to healthcare affordability
Medicines represent just 10 cents of the healthcare dollar
Access to Innovation
Medicines represent what for many is a surprisingly small portion of health care costs - just 10 cents of each dollar spent on healthcare goes to medicines, only seven cents of which is brand name medicines. These medicines are giving more and more patients longer, better lives, and help control overall healthcare spending by reducing invasive surgeries and expensive stays in the hospital and nursing homes.
Research by Columbia University economist and professor, Frank Lichtenberg, finds that for every dollar spent on newer medicines in place of older medicines, total healthcare spending is reduced by $6.17.[i] In addition, a recent report found that every additional dollar spent on healthcare in the U.S. over the past 20 years has produced health gains worth $2.40 to $3.00.
Heart failure: Patients with heart failure who are treated with beta-blockers live longer and treatment costs are $3,959 lower than patients who do not take these medicines.
A January 2004 study by Duke researchers found that "beta-blocker therapy improves the clinical outcomes of heart failure patients and is cost saving to society and Medicare." The study, which was written before enactment of the Medicare drug benefit, notes: "If medication costs were completely reimbursed by
Medicare, program savings from beta-blocker therapy would remain positive."[ii] Looking more broadly, the researchers found that five years of treatment for heart failure without beta-blockers cost a total of $52,999. With beta-blockers added to treatment, total treatment costs fell by $3,959, patient survival increased by an average of about three-and-a-half months, and patients needed fewer overnight hospital stays.
Depression: New medicines brought down the cost of treating depression in the 1990s by reducing the need for hospitalization.
New studies are showing how newer, better medicines reduce the cost of treating people with depression. The cost of treating a depressed person fell throughout the 1990s, largely because of a switch from hospitalization to medication," the Wall Street Journal said in a December 31, 2003, story on the study. The study, published in the Journal of Clinical Psychiatry in December 2003, found that per-patient spending on depression fell by 19% over the course of the decade.[iii]
Diabetes: Medicines that control diabetes help prevent serious complications, reducing the cost of care by about $747 per patient every year.
New diabetes medicines are helping patients avoid serious complications and death, and can reduce overall healthcare spending. One recent study found that effective treatment of diabetes with medicines and other therapy yields annual healthcare savings of $685 - $950 per patient within one to two years.[iv] Another study corroborated these results, finding that use of a disease management program to control diabetes with medicines and patient education generated savings of $747 per patient per year.
Alzheimer's Disease: One Alzheimer's medicine was found to reduce spending on skilled nursing facilities and hospital stays.
A study of the effects of a new Alzheimer's medicine on costs in a Medicare managed care plan showed that, although the prescription costs for the group receiving the drug were over $1,000 higher per patient, the overall medical costs fell to $8,056 compared with $11,947 for the group not receiving drug treatment. This one-third savings was the result of reduced costs in other areas, such as hospital and skilled nursing facility costs.[v]
Today, many view medicines as the main force behind rising healthcare costs. In fact, outpatient medicines account for about 10.5 cents out of each dollar of health care spending. Of those 10.5 cents, about seven cents is accounted for by brand name medicines. The other three and a half cents goes to generics and to pharmacies and others who distribute medicines.
As medical standards change to emphasize greater use of medicines by a broader range of patients, spending on them is increasing more than for most other healthcare sectors. Even so, spending on medicines contributes just a small amount to healthcare costs.
Prescription medicines also play only a small role in rising health insurance premiums. From 1998 to 2003, while health plans' total premiums increased by an average of $104.62 per person, outpatient prescription drug costs increased by only $22.48. Thus, over the most recent five-year period, total brand and generic prescription drug spending accounted for just 21.5%, or less than one-quarter, of the total increase in premiums. HMOs' monthly spending on prescription medicines averaged $35.43 - out of the total monthly expenditure of $238.70 per person.[vi]
While medicines play a relatively small role in rising health care spending overall, it is important to ensure that individuals with large costs have affordable access to their medicines. Good insurance coverage for all Americans is a key first step, and the new outpatient prescription drug benefit under Medicare will help ensure that seniors and people with disabilities can afford the medicines they need. Needy patients without prescription drug coverage should also know that help is available through the Partnership for Prescription Assistance (PPA). This program brings together 475 patient assistance programs that provide 2,500 medicines for free or nearly free. Since April 2005, more than 5 million patients have been helped. Learn more about PPA.
"New drugs often reduce overall health costs. For diseases such as ulcers, a few pills have replaced major surgery. New drugs also shorten hospitalizations and prevent the costly complications of chronic diseases such as diabetes and high blood pressure."
- Dr. Mark McClellan, Then-FDA Commissioner, September 25, 2003
[i]Frank R. Lichtenberg, "Benefits and Costs of Newer Drugs: An Update," National Bureau of Economic Research Working Paper No. w8996 (Cambridge, MA : NBER, June 2002).
[ii]PA Cowper, et al., "Economic Effects of Beta-Blocker Therapy in Patients with Heart Failure," The American Journal of Medicine, 116 (2004): 2, 104-111.
[iii]PE Greenberg, et al., "The Economic Burden of Depression in the United States : How Did It Change Between 1990 and 2000?" Journal of Clinical Psychiatry, 64 (2003): 1465-1475.
[iv]E.H. Wagner, et al., "Effect of Improved Glycemic Control on Health Care Costs and Utilization," Journal of the American Medical Association, 285 (2001): 2, 182-189.
[v]JW Hill, et al. "The Effect of Donepezil Therapy on Health Costs in a Managed Care Plan," Managed Care Interface, (March 2002): 63-70.
[vi]Milliman USA Inc., 2003 HMO Intercompany Rate Survey (Seattle, WA : Milliman USA, Inc., 2003).
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