• It's Still the Prices, Stupid

    "I have two kinds of problems, the urgent and the important. The urgent are not important, and the important are never urgent."
    -- President Dwight Eisenhower

    In 2003, Gerard Anderson, Ph.D., Uwe Reinhardt, Ph.D., and others wrote an article for Health Affairs titled "It's the Prices, Stupid: Why the United States Is So Different From Other Countries." In this article, they proclaim that "the difference in spending is caused mostly by higher prices for health care goods and services in the United States."

    50983603 - dollar packs in the capsule, pill. healthcare costs or financial aid concept. 3d

    Health policy experts have long focused on the difference in per-capita spending in the United States compared with that of other countries in the Organization for Economic Cooperation and Development (OECD). The Health Affairs article notes that in 1984, per-capita spending on health care in the United States was $1,637 -- nearly double the OECD mean of $871. By 2000, the delta had grown much greater, with U.S. per-capita spending at $4,631, compared with an OECD median of $1,983.

    According to the report Health at a Glance 2017: OECD Indicators, per-capita health care spending in the United States grew to $9,982 versus an OECD average of $4,003.

    An interesting and contributing factor noted in that report is the fact that the United States has fewer physicians (2.6 per 1,000) and hospitals (2.8 beds per 1,000) compared to the OECD average (3.4 physicians per 1,000 and 4.7 beds per 1,000). The United States has fewer sites of care and fewer physicians providing care on a per-capita basis, but we spend, on average, more than twice as much as other countries. What is happening?

    There is a growing consensus that the answer may have been provided to us in the aforementioned Health Affairs article -- it's the prices. During the past few years, health policy experts have accelerated their research and writing regarding the impact of prices on health care costs.

    One area that has garnered a significant amount of attention is pharmaceutical pricing and spending -- and for good reason. The 2016 Health Care Cost and Utilization Report from the Health Care Cost Institute found the following:

    • In 2016, prescription drugs represented 19 percent of per-capita health care spending.
    • Between 2012 and 2016, the price of branded prescription drugs increased 110 percent, while the number of filled days declined by 38 percent.
    • The prices of physician-administered drugs rose 42 percent from 2012 to 2016, despite a 4 percent decrease in use.

    These statistics have drawn the attention of federal and state legislatures and -- more significantly -- the Trump administration. In May, the administration released a new report titled American Patients First: The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs. In the report, HHS identified four challenges in the U.S. drug market:

    • high list prices for drugs,
    • seniors and government programs overpaying for drugs because they lack the latest negotiation tools,
    • high and rising out-of-pocket costs for consumers, and
    • what the report termed "foreign governments free-riding" on U.S. investment in innovation.

    HHS has proposed a comprehensive blueprint for addressing these challenges, identifying four key strategies for reform:

    • improved competition,
    • better negotiation,
    • incentives for lower list prices and
    • lower out-of-pocket costs.

    The HHS blueprint encompasses two phases: actions the president may direct HHS to take immediately and actions the agency is actively considering. HHS issued a request for information (RFI) related to reducing drug prices and out-of-pocket costs on May 16. The RFI solicits feedback on several key issues that impact the price and availability of prescription drugs:

    • improving competition and ending the gaming of the regulatory process,
    • supporting better negotiation of drug discounts in government-funded insurance programs,
    • creating incentives for pharmaceutical companies to lower list prices, and
    • reducing out-of-pocket spending for patients at pharmacies and other sites of care.

    The issue of prescription drug costs has been a priority for the AAFP for the past few years. Our Congress of Delegates has approved several new policies on the issue, including a policy on generic drug pricing and support for allowing Medicare to negotiate the price of prescription drugs.

    In 2017, the AAFP became a member of the Campaign for Sustainable Rx Pricing, a nonpartisan coalition of nonprofit medical associations, insurers and hospitals committed to addressing drug price increases by striking a balance between drug innovation and affordability.

    On July 13, the AAFP submitted its suggestions to HHS in response to the RFI. Our letter notes that, "managing prescription drug prices for their patients is an important concern for family physicians. Family physicians have a meaningful interest in the drug pricing debate, in part because of the complexity of care provided and the fact that the number and complexity of conditions, complaints and diseases seen in family medicine is far greater than those seen by any other physician specialty."

    Our letter focused on a set of policy recommendations that involve generic drug access, site-neutral payments, value-based drug pricing, Medicare negotiation authority, transparency and Medicare Part B drugs. The AAFP will continue to work with the administration, Congress and our coalition partners to advance policies that make prescription drugs more accessible and affordable for patients.

    P.S. Yes, I am aware I didn't mention pharmacy benefit managers. That's an important issue that I will address in a future post.


    Stephanie Quinn, AAFP Senior Vice President of Advocacy, Practice Advancement and Policy.  Read author bio »


    RSS     About RSS

    Our Other AAFP News Blogs

    Fresh Perspectives - New Docs in Practice
    Leader Voices Blog - An AAFP Leaders Forum
    FPs on the Front Lines - Meeting the Challenge


    The opinions and views expressed here are those of the authors and do not necessarily represent or reflect the opinions and views of the American Academy of Family Physicians. This blog is not intended to provide medical, financial, or legal advice. All comments are moderated and will be removed if they violate our Terms of Use.