Pharmaceutical Cost Control
The pharmaceutical industry has been monumentally beneficial to healthcare across the world. Prescription drugs have impacted society by increasing life expectancy in ways that include reducing illnesses, stabilizing chronic disease progression, avoiding preventable surgical operations, reducing hospital stays, and improving the quality of life of people suffering with chronic diseases. With that being said, rising pharmaceutical costs negatively impact many lives because high drug costs creates limited access to medications and therapies needed to overcome and sustain acute and chronic health conditions which in turn creates negative health outcomes. Between 2013 and 2015, net spending on prescription drugs increased approximately 20% in the United States, outpacing a forecasted 11% increase in aggregate health care expenditures.
In 2013, per capita spending on prescription drugs was $858 billion compared with an average of $400 billion for 19 other industrialized nations. In the United States, prescription medications now comprises an estimated 17% of overall personal health care services (Kesselheim, Avorn, & Sarpatwari, 2016). This paper discusses ways to address controlling the cost of pharmaceuticals as it relates to the healthcare delivery system, economics, and policy, it’s stakeholders and the cause and effect controlling cost has on the stakeholders, as well as the intended impact of pharmaceutical cost control on the future of healthcare.
Relation to Healthcare Delivery, Economics and Policy
Controlling pharmaceutical costs as it relates to healthcare delivery, economics, and policy is a complex, multifaceted issue. Policymakers are in search of different mechanisms to reduce overall healthcare costs and prescription drugs have been substantial contributors to health care inflation. Pharmaceuticals account for about 10% of total health care costs, and although spending on pharmaceuticals have recently slowed, it is poised to swell in upcoming years as a result of the increasing prices of complex specialty medicines (Kesselheim et al. , 2015).
Additionally, spending on prescription drugs increased 12. 2% in 2014, straining public sector budgets, and causing some private insurers to put an increasing percentage of branded drugs on high cost sharing tiers. Much of the growth in spending is driven primarily by high priced branded drugs, so there is growing concern that the high prices are restricting access to branded drugs that have the potential to save lives and reduce morbidity (Ballreich, Alexander, Socal, Karmarker, & Anderson, 2017). The free market economy of the United States makes it difficult to create policies that gear toward reducing and controlling pharmaceutical costs. However, two policies that are in place to control drug cost is the 340B Drug Pricing Program and the Biologics Price Competition and Innovation Act. The 340B Drug Pricing Program allows certain hospitals and other covered entities to obtain discounted prices on covered outpatient medications from drug manufacturers. The Health Resources and Services Administration (HRSA) estimates that covered entities saved $3. 8 billion on outpatient drugs through the program in the 2013 fiscal year. The Biologics Price Competition and Innovation Act allows for fast-track approval of biosimilar drugs to combat high-priced biologic medications.
The Center for Medicare and Medicaid (CMS) explains that biosimilar products are an opportunity to achieve cost savings and greater patient access to expensive therapeutic treatments for chronic conditions (Dana, Hertig, & Weber, 2017). The enactment of both policies effects pharmaceuticals as it relates to the health care delivery system by making drugs more affordable and reduces overall healthcare spending. Economically, the prices for drugs are rising, and there is nothing in place to prevent them from reaching even higher prices. According to Kesselheim et al. (2016), the most important factor that allows manufacturers to set high drug prices for brand name drugs is market exclusivity which arises from two forms of legal protection against competition. Together these factors generate government-granted monopoly rights for a defined period of time.
The first is the regulatory exclusivity awarded by the Food and Drug Administration (FDA) which allows small molecule drug products an automatic guarantee of five to seven years before a generic competitor can be sold, and new biologic drugs are protected from competition for twelve years. The second form of protection is the patent-related exclusivity where manufacturers can receive patents lasting twenty years or more for their inventions (Kesselheim et al. , 2016). In order to combat this the federal government can limit secondary patents for trivial changes of a patented molecule, aggressively police anticompetitive business practices, enable medicare to negotiate drug prices and experiment with value-based drug pricing and rational prescribing reimbursement models for Medicare, invoke government royalty-free license rights on excessively costly products that were develop in large part with government funding, allocate greater resources at the FDA for reviewing generic drug applications to facilitate competition and mandate brand name drug sampling with generic manufacturers, and allocate greater resources to the FDA for reviewing follow-on biologic applications.
On the state level, it can convert permissive generic substitution policies to mandatory substitution policies, eliminate patient consent requirement for generic substitution, and it can test value-based drug pricing and rational prescribing reimbursement models for Medicaid. As a healthcare delivery organization, it can develop value based formularies and co-payment plans that encourage patients to make better choices but do not penalize them and hamper adherence and it can initiate academic detailing programs to market the best comparative evidence to prescribers and policy makers (Kesselheim et al. , 2016).
The Cause and Effect on Stakeholders
Stakeholders can help to control the rising cost of pharmaceuticals by compromising on certain issues. According to Branning and Vater (2016), the healthcare stakeholders in regards to pharmaceuticals are the patient, the provider, the health insurer, the pharmacy benefit managers (PBM), the government, and the pharmaceutical manufacturer. Each stakeholder role is as follows: The patient intends to spend as little as possible out of pocket and relies on third party payers for the majority of healthcare costs. The provider wishes to earn income substantial enough to pay back student loans and justify the time and effort invested in patient care. The health insurer needs to generate more in revenue than the company will spend on medical care for members.
The PBMs wants to collect service fees and earns a percentage of savings generated on behalf of customers. The government intends to spend as little taxpayer money as possible while providing the access to care for America’s most vulnerable populations. The pharmaceutical manufacturers wants to generate enough income to earn a profit after recouping research and development and marketing costs (Branning & Vater, 2016). In today’s society, all of the stakeholders are straining from the pressures exerted by one another. Each stakeholder is concerned with their own vantage point and how policies can be adopted to benefit them. As a system, every stakeholder that contributes to the US healthcare system does so with the primary goal of helping patients and improving healthcare outcomes, however, their parallel objective to earn a profit has often added unintended consequences and costs to an already complex system (Branning & Vater, 2016). Although patients are the central figures in any healthcare system, they also bear some responsibility for rising costs. Patients may not value healthcare as a service in which they are willing to invest their own money upfront, so they have little incentive to actively participate in reducing costs. Responsibilities for rising cost in regards to providers are related to prescribing behaviors and fee for service. Payers and PBMs motivation is to collect more in premium dollars than they spend on healthcare services for their members (Branning & Vater, 2016).
Governmental blame is attributed to the fact that taxpayers are paying more for their own healthcare and for subsidized care provided to Medicare and Medicaid beneficiaries. Pharmaceutical manufacturers argue that they have to charge higher prices to cover research costs, but in reality they spend more on marketing and promotion. Additionally, they argue that paying less for drugs will cause innovation to not be financially worthwhile, and society would not enjoy the possible benefits of new innovator drugs (Van der Gronde, Uyl-de Groot, & Pieters, 2017). It is the responsibility of all stakeholders to participate in solutions that help control pharmaceutical cost. Solutions that include compromises from all parties are based on one of four general intervention options. The four options are shifting from expensive to cheap drugs, within the same class, shifting costs towards patients or insurers, reducing drug prices, or reducing total drug uses.
Intended Impact on the Future of Healthcare
The intended impact of cost control of pharmaceuticals on the future of healthcare is to provide the most cost effective innovations. Other ways to reduce spending is to promote the use of health economics and outcomes research. Utilizing this research helps health care professionals determine whether a new medication's benefit is worth the price compared to other therapy options (Dana et al. , 2017)
Measures such as Health Technology Assessment (HTA), product-specific pricing agreements for high-cost pharmaceuticals or performance-based scheme have been employed to do just that. In pharmaceuticals, HTA is used to inform decisions on pricing, reimbursement and the development of prescribing guidelines as well as provide incentives to the manufacturers for the development of new technologies that are of value to the health system. In pricing agreements, the unit price of a specific product is linked to its “value” in terms of health gains or to its volume of consumption. Performance-based schemes are put in place when available clinical evidence is insufficient to inform a decision on a new pharmaceutical. In this case, regulators aim to minimize risk and ensure patient access (Karampli, Souliotis, Polyzos, Kyriopoulos, & Chatzaki, 2014).
Furthermore, drug cost should influence prescribing and administration decisions to further reduce spending for both hospital and patient. Formulary medications are the most cost-effective options; utilizing preferred drug lists at an institution can reduce excess spending. Negotiating rebates directly with manufacturers is another potential opportunity to promote drug cost savings. For patients, accessibility to insurance and drug coupons will offer added discounts (Dana et al. , 2017). Additionally, The Affordable Care Act will continue to reduce medicine spending for patients due to expanded insurance coverage, improved coordination of care, and a shift to value-based payment (Dana et al. , 2017).
Conclusion
The pharmaceutical industry is steadfast in it’s argument that capping costs can significantly impact funds for research and development. Opponents of price control claim that they have been uniformly disastrous, resulting in market distortions, shortages, poor quality, and black market. In the case of the pharmaceutical industry, it is argued that not only does price control limit innovation, it also lowers quality and availability which can result in reduced well being for Americans, (Henderson, 2018). However, benefits of positive health outcomes utilizing life preserving medications that are reasonably obtainable for individuals are the aims of pharmaceutical cost control. Although it is essential to promote and reward applied research that fosters pharmaceutical innovation, policies must be put into place to allow patients to be able to access those innovations. Stakeholders must collaborate with one another in order to continue to benefit and profit from one another. Lastly future endeavors of pharmaceutical advancements must include strategies or measures that control drug costs because those strategies and measures will be fundamental to delivering healthcare to its targeted consumer.
