It's Time for "Pharmaceutical Reform"

Like other employers, I found myself frustrated as I reviewed health insurance claims and projected medical costs through the next year. The current healthcare costs trends are, shall we say - unsustainable. We've said that for the past decades, yet here we are still saying it with very little change other than more regulation and higher costs.

The news is filled with the topic of "healthcare reform" - not just lately, but for years. The costs go up, coverage goes down, and there is no relief in site. The Affordable Care Act (ACA) was sold as the start of the solution and a move forward in reforming healthcare. Whether you like the ACA or not, it did bring about changes - some of them good, a lot of it expensive, and no matter what happens in Congress, it will not be completely revoked.

As an employer representative, I see things changing - and not changing. Costs still go up...about the same as they were before and they may be volatile depending on our experience, PLUS the additional employer ACA taxes. Healthcare providers talk about creating Accountable Care Organizations to improve quality of care - but rarely do we hear about any cost savings. In fact, between 38-65% of spending increases come from medical technology, and that includes the big push for electronic medical records as a part of the ACA. Medical groups are buying the small practices and it's harder than ever to find a doctor.

But here's the biggest rub...with all the changes, advances and cost containment strategies, what about the cost of pharmaceuticals? When we throw it into "healthcare reform", it gets lost - rarely are there any reformations that actually impact the cost of drugs or the drug manufacturers. In fact, specialty drugs represent 35% of the entire drug spend and it is expected to rise to 50%. Those are not the majority of drugs helping the majority of people...they are specialty drugs helping only a relative handful. Sure, those drugs are great - they save lives, improve quality of life, and are a Godsend to some. The issue is the cost for the development of those drugs being passed on to the U.S. market. It appears that the U.S. is covering the vast majority of costs of these drugs - a cost that is not always passed along to others.

"Of the $1.05 trillion revenue for the global pharmaceutical market, nearly half of it - roughly $515 billion - comes from the U.S. and Canada. However, these two countries make up only around 7% of the total world population." ~ Source

In many (I'd venture to say "most") cases, the same drugs can be purchased outside of the U.S. - same prescription, same manufacturer, same everything - for significantly less than here in the U.S. Why not purchase it from other countries? We have laws that prohibit us from doing it. Does that make sense? Not really...not only do the drug manufacturers charge more to the U.S. market, but we restrict ourselves from buying the same products significantly cheaper. In a sense, we're being taken advantage of and we're doing it to ourselves.

The other side of the argument is the cost to develop new drugs. I get that it is expensive...and if the drug manufacturers were losing money, perhaps I would be sympathetic. Yet as reported back in 2015, Forbes estimated a 21% profit margin for the healthcare technology industry. Golden children such as Gilead Sciences reported a 53% profit margin last year. Stock returns over the past 10 years for the 10 biggest pharma companies based on 2015 sales is 88%. Breaking it down further, generic pharma net profit margin in 2016 was 30% and major pharma was 25.5%.

Over the next 5 years, a mere handful of new drugs hitting the market is expected to generate an average 2% increase in healthcare costs. Why do pharmaceutical companies charge as much as they do - and obviously profit well from it? Because we let them.

It's time to include a focus on pharmaceutical reform when trying to control healthcare costs. Without a specific, targeted emphasis on pharma, the overall impact of so-called healthcare reform will be hampered. It's time to apply pressure to allow for international competition by allowing access to the same drugs from other sources. It's time to take a harder look at costs and opportunities for employers and individuals to find competitive options that can work. It's time for us to not only get mad, but to do something about it to control these costs.

The current road we are on is unsustainable. It's time to look for pharma solutions. I don't have the answers (yet many consultants will tell you they do), but it's time for like minded employers to begin to have serious conversations with one another about what we can do collaboratively to take charge of pharma costs.

Consider this a "call to arms".

Here's to your success!

Dr. Wade M. Larson

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Twitter: @DrWadeLarson