Prescription Drugs Boosted Health Care Costs 44% Last Year, Health Affairs Study Finds

Prescription drugs accounted for 44% of the increase in health care costs last year, while doctors' services accounted for only 32%, outpatient hospital care 21% and inpatient hospital care 3%, according to a new study appearing in Health Affairs, the New York Times reports. Researchers also found that overall health care costs for services covered by private insurance climbed 6.6% last year, while pharmaceutical spending jumped 18.4%. Study co-author Paul Ginsburg, president of the Center for Studying Health System Change, said, "Drug spending is growing much faster than other components of health care. Drug costs are having a bigger and bigger effect on overall health costs." While Pharmaceutical Research and Manufacturers of America Executive Vice President Judith Bello declined to comment on the study, she "insisted" that "[p]rescription drugs are often the most effective and least costly way" to treat an illness. The study in Health Affairs attributed one-third of the increase in prescription drug spending last year to higher prices, with the remainder resulting from a higher volume of sales, the advent of new medicines and the increased use of existing products. The rise in prescription drug costs has prompted proposals from lawmakers to "rein in" pharmaceutical prices and to add a drug benefit to Medicare, with some Democrats "complain[ing]" that seniors often pay "far more" for medicine than the drug companies' "most favored customers," such as HMOs. Last week, however, the U.S. 11th Circuit Court of Appeals upheld the right of pharmacies to charge higher prices for drugs sold to the uninsured in a case involving Rite Aid drugstores in Alabama. The court ruled that retail pharmacies "had no duty" to disclose whether they charged higher prices to uninsured than to insured customers, adding that such disparities "did not constitute fraud and did not violate the law." On the insurance front, inflation has returned after several years of "low growth" in health insurance premiums, and higher premiums mean higher costs for employers and employees, Ginsburg said. Study co-author Jon Gabel, vice president of the Health Research and Educational Trust, called the "resurgence" of health care costs "alarming." He said, "It appeared that health costs were under control from 1993 to 1997, and even into 1998." According to the study, premiums for private plans rose an average of 2% per year between 1994 and 1998, but rose an average of 8.3% this year for all businesses and 7.5% for companies with more than 200 employees (Pear, New York Times, 11/14). Could Volume Help Lower Prices? At an American Public Health Association conference in Boston on Nov. 13, Alan Sager, a professor of health services at the Boston University School of Public Health, argued that drug firms could drop prices for prescription drugs by as much as 40% and still might not lose money by increasing production "to fill unmet demands," the AP/Boston Globe reports. "We have a choice," Sager said, adding, "People can suffer and die. We can spend more. Or we can get all the medications we need for the $140 billion we are already spending on prescriptions." PhRMA spokesperson Jeff Trewhitt called the plan "risky," explaining that the high costs of medicine result largely from the millions of dollars spent to research and develop new drugs. Citing the importance of "volume," however, Sager said that by boosting production, drugmakers could achieve the same profits while providing medications to all Americans, including the 25% without drug coverage. "There will be a huge rise in demand when you cut prices," he said, adding that pharmaceutical companies could save another $27 billion each year by cutting marketing, advertising and "copycat research" costs. According to Trewhitt, however, Sager's plan offered no guarantee of success. "Biomedical research has a very high failure rate," he said, adding, "You never know when you start a new research project how much it is going to cost in research and development." He also pointed out that drug companies spend an average of $500 million to develop a single new drug and that the cost of research has escalated from $2 billion in 1980 to $26.5 billion this year. In addition, he argued that the plan would set a "dangerous precedent," concluding, "The last thing we need is a patchwork quilt of differing and conflicting state laws" (AP/Boston Globe, 11/14).