We have a serious problem of affordability of healthcare in the U.S., including the cost of many innovative pharmaceuticals, making access to life-saving drugs beyond the reach of some Americans. The problem of healthcare costs and what the U.S. spends is a decades long issue, largely rooted in a broken fee-for-service model, a subject which I’ve covered in other columns. A serious look at overall healthcare costs and access must also include a focus on pharmaceuticals and where drugs fit into the ecosystem.
Pharmaceutical costs account for approximately 14% of the total healthcare spend, so even if we eliminated all drug costs, the U.S. would still be paying more per capita than many other industrialized countries. If we were achieving overall health outcomes commensurate with the total spend, the problem might be less concerning. But we spend more in the U.S. and our outcomes are suboptimal in comparison to other major nations when it comes to life expectancy, for example. This situation has long been known but efforts to fix it have failed to address underlying issues. Given that healthcare is a complex web of large, interconnected market segments (e.g., healthcare delivery, payers, PBMs, pharma and medical device companies), changes in one part of the healthcare ecosystem have significant impacts on other components, the total cost of care, and overall health outcomes. And legislative efforts that take a piecemeal approach or fail to examine unintended consequences in the short and longer term, compound the problem.
On February 8th Bernie Sanders, Chairman of the H.E.L.P. Committee, led a group of Senators in his latest pursuit against pharmaceuticals and the cost of drugs in the U.S. The CEOs of Bristol Myers Squibb, Johnson & Johnson, and Merck, three of the largest pharmaceutical companies in the U.S., testified at a hearing on Capitol Hill, the purpose of which was to illuminate the cost of drugs and to make them more affordable. In his prepared remarks for the hearing, Senator Sanders stated that one of his top priorities “is to substantially reduce the price of prescription drugs in America.” The committee’s core message centered on a few key points: drug prices in the U.S. are too high, especially when compared to other countries; too often people can’t afford to take the medicines they’ve been prescribed; and pharma companies are responsible for the situation. The idea that pharma was solely or primarily to blame for the cost of drugs served as the backdrop for much of the hearing with Sanders pointedly asking each of the CEOs at various times, “so, what are you going to do about it?”
The problem of drug costs in the U.S. and access to medicines more broadly is not solely a reflection of what individual pharma companies set as the list price for new drugs. Insurance benefit design, formulary position, the influence of PBMs in drug pricing, patient access to pharma sponsored patient-assistance programs, are some of the factors that must be considered when trying to understand root cause and develop solutions to what patients often experience when filling their prescriptions—they can’t afford the medicine they need to take.
Rather than exploring these factors, the Committee took a different direction. Senator Sanders established early on that each of the CEOs is paid well, that each of the companies has been profitable, and that the companies do turn a profit even on the drugs sold in other markets outside the U.S. at significantly lower cost. The impact of patent expiration on drug costs in different markets was not discussed as a factor in these cross-market cost comparisons. Yet it is widely known that once a branded pharmaceutical goes off patent, it hits the patent cliff and its price falls dramatically while market share shifts to generic equivalents.
Sanders also established that these companies are buying back stock and made the argument that they are doing that instead of lowering drug prices to make their products more affordable for the patients who need them. The picture being painted was that these companies are fundamentally driven by greed.
At one dramatic moment in the hearing, Sanders also attempted to draw a causal connection between drug prices and life expectancy, implying that where drug prices are lower, life expectancy is higher. Having made the point that prices for certain drugs manufactured by J&J, Merck, and BMS are significantly lower in Japan, Canada, and other countries, Sanders went on to note, “the life expectancy in Japan is nine years longer than it is in the United States…. Life expectancy in Canada is six years longer than in the United States. Life expectancy in Portugal is six years longer. Life expectancy in the UK is four years longer.” While life expectancy is longer in these other countries compared to the U.S., a correlation is not causation.
A whole host of factors contribute to life expectancy—diet, exercise, behavioral health, lifestyle choices, to name a few. Researchers have known, for example, that Japanese people living in Japan have longer life expectancy than counterparts living in Hawaii who in turn have enjoyed longer life expectancy than those living in other parts of the U.S. Differences in life expectancy are about more than drug costs. For instance, the CDC reports that 1 in 4 Americans are not active enough to protect their health. And the U.S. would be worse off without the major healthcare innovations driven in no small part by the pharmaceutical industry. According to a Health Affairs study, U.S. life expectancy has increased 3.3 years since 1990, with pharmaceuticals accountable for 35% of improved life expectancy for all causes of death. But Sanders inferred that pharma is to blame for poor life expectancy in the U.S. due to the cost of drugs.
Serious efforts to address the cost of drugs, access to them, and life expectancy in the U.S. require a broader, constructive approach to the healthcare ecosystem. Legislators, pharmaceutical CEOs, payers, PBMs, and other stakeholders need to work together to evaluate the current system, eliminate perverse incentives, and outline the steps required to fix healthcare. Piecemeal solutions won’t move the needle.
There were moments in the hearing where lawmakers seemed to grasp the need to widen the scope of the inquiry. Senator Cassidy noted in his opening remarks, “the problem is far greater and more complex than individual companies or even a set of companies within an ecosystem.” He continued, “we need to have a serious effort to navigate the network of perverse incentives throughout the health care system.” Unfortunately for the American patient-consumer, this hearing was a missed opportunity to do so.
