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Smart Thinking blog

Insights and expert advice on the key issues facing today’s pharma marketer

The blame game

In the 'healthcare spending crisis' it’s important to look beyond sensationalist headlines
The Blame Game

It has become fashionable to blame big pharma for the woes of the health system. In fact it's almost de rigeur to complain about the rising costs of healthcare and to place that blame squarely at the feet of the pharmaceutical industry. Is that fair? What do the data suggest?

In some jurisdictions, the data on drug spending are presented in a somewhat confusing manner. Most of what we call 'drug spending' is not actually drug spending on patented medicines. In fact patented drugs account for no more than 40% of all public and private drug spending in a country like Canada. And this is really the core issue when it comes to apportioning blame. The average layperson is led to believe that pharma spends its days developing new, expensive medicines to replace old, perfectly good ones and that this is what drives the cost in the health system. Coupled with the recent US news (released by Pharmacy Benefits Manager, Express Scripts) that prescription drug spending rose over 13% in 2014 - which was largely driven by specialty medicines, it is no wonder that the public's view of the pharmaceutical industry is tainted with suspicion and contempt.

Yes, new medicines cost more money. But they bring a benefit which is rarely acknowledged or captured in a typical newspaper-length column. We rarely count the downstream benefits that accrue to the health system because of these newer therapies: increased throughput, better outcomes, less time away from work, reductions in caregiver support, the elimination of costly ongoing monitoring and lab testing, etc. This 'burden of illness' factor is either ignored or not well understood and, therefore, not highlighted. It is hard to put a number on some of these issues.

But let's get back to the numbers for a moment. If only 40% of all drug spending is on patented or prescription medicines, then where is the balance of the money being spent? Administrative costs, taxes, pharmacy dispensing fees, wholesaler markups and non-patented drugs (ie, generics). That's the reality in some jurisdictions. The term 'drug' spending has become interchangeable with all of these buckets. In fact, using the Canadian data as a surrogate, spending on patented drugs has grown much slower than spending on the rest of healthcare. Over the most recent five years from 2008 to 2013, per capita spending on patented drugs grew by only 2.1% in total over the entire period. By comparison, per capita spending on all other healthcare (excluding patented drugs) grew by 16.7% from 2008 to 2013. Does a similar trend appear in other nations? Probably. Do other nations lump in to their drug spending bucket a hodge-podge of elements such as the ones listed above? Probably.

The 'burden of illness' factor is either ignored or not well understood and, therefore, not highlighted

The other issue that I have been a strong proponent of is looking at the 'freshness index of drug spending'. In other words, if newer patented medicines are truly driving a disproportionately high cost (like Hepatitis C medications in the US did in 2014), then let's examine that. Let's arbitrarily agree that if patented drug spending on medicines approved within the last five years exceeds a threshold of more than 50% of total drug spending, then newer drugs are the culprit and that we need tighter price controls for newer therapies. Or let's pick different numbers. Let's make it within the last three years and let's make the threshold 70% of total drug spending. It doesn't really matter as long as the health economists and policy folks can come up with a fair number that everyone agrees best captures the issue. Because we can all agree that therapies that cost hundreds of thousands of dollars per year play a role in this debate. But we can also agree that subtle price increases on statins, ACE inhibitors, basal insulin therapies and low-molecular weight heparins are not well understood. And we can also agree that 'high-priced generics' (a separate column on its own) are lumped into the numbers on 'drug' spending when, in fact, they are not patented medicines.

My perspective on this is not that newer therapies are appropriately priced. Some of the annualised costs are outlandish. My perspective on this is not to defend our industry just for the sake of defending it. However, it is important to calibrate people on this supposed 'healthcare spending crisis'. It is critical to ensure that everyone understands what role patented medicines play in this debate. And when we pick up reports and scroll through websites with sensational headlines, it's important to remind people not to believe everything they read.

Article by
Rohit Khanna

Managing director of Catalytic Health, a healthcare communications, advertising and strategy agency. He can be reached at: rohit@catalytichealth.com

24th June 2015

From: Healthcare

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