By Earl D. Fowlkes, Jr
Sometimes in Washington, lawmakers lose sight of the forest for the trees.
This is exactly what is happening now. Well-meaning lawmakers are trying to make healthcare more affordable – cutting prescription drug costs in the upcoming filibuster reconciliation bill.
Virtually all Americans would agree that health care is excessively, and often unnecessarily, expensive. We spend far more, per capita, on everything from drugs to medical devices to surgery than other countries. Reforms are desperately needed.
But the changes proposed by lawmakers – more importantly, a proposal to repeal Medicare’s “no-interference” clause and let the federal government negotiate drug prices directly with drug companies – would be ineffective, if not counterproductive. productive, to reduce health costs.
By focusing myopically on prescription drug prices, lawmakers are missing out on the real drivers of healthcare costs – hospitals, doctor’s offices and, to a lesser extent, insurers. Retail prescription drugs have accounted for about 10% of overall health care spending for decades. And in recent years, drug prices have actually gone down. A study by the Drug Channels Institute estimates that the prices of brand-name drugs fell 2.6% in 2018, 2.3% in 2019 and 2.2% in 2020, after accounting for discounts.
Compare that to hospitals, which account for over 30% of total health care spending and have increased prices repeatedly year after year. Americans – and their insurers – spent $ 1.2 trillion on hospitals in 2019, compared to $ 370 billion on retail prescription drugs.
Doctors are not faultless either. According to CMS, doctors and clinical services account for 20% of all healthcare spending, to the tune of $ 772 billion in 2019.
Americans also spend an unusually large amount on administrative costs, which is largely the result of the fragmented nature of our health insurance system. About 8% of all national health spending goes to government administrators and private insurers who don’t manufacture a single medical device or drug or diagnose and treat a single patient.
Simply put, even massive reductions in drug prices would hardly hurt overall health spending.
And these cuts would not be without compromise. Health policy experts have long noted that the only way the federal government could “negotiate” significantly lower prices would be to exclude certain leading drugs from Medicare coverage.
Other developed countries are already engaged in this rationing. While Americans had access to 89% of new drugs introduced to the world from 2011 to 2018, Canadians had access to only 44%, Germans 62% and Britons 60%. This rationing explains why Americans generally have much better survival rates for cancer and other serious illnesses.
Black Americans are more likely to live with a myriad of chronic diseases, from diabetes to many forms of cancer. Rationing of drugs would disproportionately harm these patients. Drugs used to treat chronic illnesses, such as insulin and anti-arrhythmics, are already among the most frequently excluded from the formularies.
Some people would even incur higher overall health care bills as they lose access to the drugs that keep them healthy and out of the hospital.
If Congress is serious about limiting spending and making health care more affordable, it will need to tackle hospital MRI scans that cost thousands of dollars and routine surgeries that generate $ 30,000 bills. Trying to reduce retail drug costs won’t significantly move the needle – it will simply reduce patients’ access to life-saving therapies.