The High Costs of Drug Costs

 By Amy Allina

Ensuring that high quality health care that meets the needs of diverse women is available to everyone is one of the three goals central to the National Women’s Health Network’s vision for improving women’s health. This means not only expanding access to care for women who don’t have it now, but also working for a health system that offers evidence-based care that is respectful of women’s experiences and responsive to our needs. As the NWHN works to expand access to everyone, we’re also working to improve the quality of the care women receive.

As a watch-dog organization with a three-decade history of monitoring the way drug companies build huge markets and profits on women’s backs -- and consistently fight efforts to control spending on unnecessary drug use -- the NWHN understands that reining in those companies is a key step to providing the kind of care we need for all women. Put simply, we believe this country will have to stop pharmaceutical industry profiteering in order to make it possible to provide comprehensive, quality health care to everyone.

Health Care Access and Women

Access to health care in the United States seems to worsen every day. About 48 million people were uninsured for at least part of last year, and the problem is no longer limited to the poorest families. More than 40 percent of people of working age in the United States who have annual incomes between $20,000-40,000 were uninsured for at least some time during 2006. That number has grown significantly in the last five years; in 2001, less than 30 percent of those individuals were uninsured for part of the year.

Without insurance, people have to make hard budget choices pitting health care against other needs that may be more immediate, like housing or food. People who don’t have insurance are less likely to get recommended, preventive care: less than half of uninsured women aged 50--64 had a mammogram in the past two years, compared with 75 percent of women who were insured all year.¹  Even those with health insurance are frequently unable to get the care they need because of coverage restrictions, burdensome co-pay requirements, and other limitations imposed by their insurers.

Women bear the brunt of the problems with the health care system because we are the primary consumers of health care in this country, and we make most household health care decisions. Budget cutting in public programs hits women harder, too: almost 71 percent of Medicaid beneficiaries over the age of 18 are women, so cuts and constraints on Medicaid spending have a disproportionate affect on this group.

Pharma as a Barrier to Expanded Access to Care

Clearly, insurance company policies are causing at least some of these problems -- so why does the NWHN propose reining in the pharmaceutical industry? Protecting consumers against discrimination in health insurance, making health insurance policies more affordable, and ensuring adequate coverage of necessary services are vitally important efforts, and the NWHN supports them. But to create the conditions for universal health care in the United States, we believe it’s also going to be necessary to make changes in drug pricing or prescribing policies -- or both.

The fact is, corporate strategies pursued by drug companies in the United States play a critical role in blocking initiatives to expand access to health care. There are two reasons that the pharmaceutical industry is an active barrier to health care access efforts. First, the way that the industry operates drives up health care costs, making it appear that government, employers or whoever will pay the costs of health care cannot afford to guarantee universal access. Second, the pharmaceutical industry has adopted a policy agenda that includes defeating initiatives to expand access to care, making it difficult to enact real change.

Spend more, get less

Health spending in the United States has risen in recent years and is substantially higher than spending in comparable industrial countries. U.S. health care costs were $1.9 trillion in 2005; premiums for employment-based insurance were 87 percent higher in 2005 than in 2000, substantially outpacing both inflation and wage growth.²  In 2002, U.S. citizens spent 53 percent more for health care than citizens any other comparable country, but leading analysts say that the higher price is not buying more health care, just more expensive health care.³

For all that we spend, the quality of the care we get in the United States is uneven, at best. Health status indicators show that we’re not healthier than people who live in countries where health spending is lower. And even the wealthiest Americans only get slightly better care, despite the high price they pay for care. A study published in 2006 showed that, in almost half the visits made by adults in the United States to health care providers, individuals do not get recommended care.⁴ Researchers examined more than 400 indicators of quality of care for the leading causes of death, disability, and use of health services, looking at both treatment of medical conditions and preventive care. They found that patients received less than 55 percent of recommended care. The recommended care for a woman with stage I or stage II breast cancer, for example, includes offering a choice between mastectomy and lumpectomy unless she has contraindications to lumpectomy. On the prevention side, recommended care for patients over 65 who report falling includes assessing the patient’s risk factors for falls that can be modified such as medication interactions that might cause dizziness. The study showed that, all too often, the health care provided is not consistent with these evidence-based recommendations.

What explains the seeming contradiction – why do we pay more and get less? Spending on drugs is part of the answer and is the reason that reforms to control that spending must be part of the solution. Drug costs are responsible for a substantial part of the growth in U.S. health care spending, and prescription drug costs absorb significant health care resources. Prescription drug costs make up only 11 percent of total expenditures, but they have contributed enormously to the growth in spending, doubling as a share of expenditures over the last ten years.⁵ And drug prices just keep going up. According to an AARP study that looked at a sample of the brand-name drugs used most commonly by older people, the cost of drugs has risen faster than the rate of inflation for the last six years in a row.

When people visit health care providers in the United States, all too often instead of getting the care recommended by health experts, we get prescriptions for the latest miracle pill, even when there’s no evidence that taking it will improve our health. Campaigns to maximize the market for expensive, brand-name drugs promote their use by as many people as possible, including many who don't need the products. This leads to inappropriate drug use, drives up health care costs, and diverts funds from needed care. Drug companies defend the increased spending on prescriptions, saying that spending on drugs reduces other health care costs, like surgery and hospitalization. This is true in limited cases but, overall, there’s an enormous amount of unnecessary spending on prescription drugs, driven by billions of advertising and promotional dollars.

The pharmaceutical industry spends $4 billion per year on direct-to-consumer (DTC) advertising. Studies have shown that, after seeing a prescription drug ad, 30 percent of consumers talked with their doctor about the specific drug advertised, and 44 percent of those consumers received a prescription for that drug, regardless of whether it was the best choice for them. Merck deployed one of the largest DTC ad campaigns ever on behalf of Vioxx and, during the height of the ad campaign, Advertising Age named it one of its “Top 100 MegaBrands.” Since then, we’ve learned that Vioxx offered little or no benefit over safer options and caused serious health problems, including death.

Ads directed to consumers aren’t the only problem. Drug companies spend the bulk of their promotional dollars and time convincing health care providers to prescribe their drugs. Between 1995 and 2005, drug companies more than doubled the number of sales representatives who are paid to promote drugs to prescribers to 100,000. In 2004, drug companies also paid for more than half of the continuing medical education (CME) programs that doctors are required to take: more than $1 billion worth of promotion, dressed up to look like education. Studies have repeatedly showed that these efforts get results – promotion to prescribers increases prescribing of targeted drugs.⁶

Fighting efforts to expand access to care

With all of our spending on prescription drugs, the pharmaceutical industry earns huge profits and has been able to invest substantial resources in lobbying and campaign contributions to policymakers. The goal, quite simply, is to block any policy efforts to bring U.S. drug prices under control. For example, drug companies and officials who work for them gave at least $17 million to federal candidates in the 2004 election cycle, including nearly $1 million to President Bush. Drug companies spent more than $750 million on lobbying between 1998--2005, more than any other industry. There are 1,274 lobbyists for the pharmaceutical industry in Washington, more than two for every member of Congress, and countless more in the states.

With its deep pockets and insider connections, the pharmaceutical industry has been able to shut down any serious discussion of price controls on drugs in Washington, unlike the rest of the industrialized world where price controls keep drug costs down. Moreover, the drug companies are doing their best to make the dysfunctional U.S. system the model for the rest of the world. Internationally, the industry campaigns for trade agreements that undermine effective price controls in other countries (and have the additional effect of reducing access to affordable drugs in the United States as well as the elsewhere in the world).

The Medicare Example

The new Medicare prescription drug program shows just how the industry works, how its interests are at cross-purposes with consumers, and how successful it has been. The Medicare drug benefit is more expensive for U.S. seniors and the U.S. government than it needs to because the Medicare Modernization Act of 2003 prohibits the Centers for Medicare and Medicaid Services (CMS) from negotiating discounts with drug companies.

The Veterans Administration (VA) is able to negotiate price discounts on prescription drugs and the prices it pays are less than half those paid by CMS in many cases. An economic think tank analyzed prices paid by the VA versus by CMS, and found that the pharmaceutical industry makes more than $7.6 billion in excess profits just from the 20 drugs most frequently used by seniors. On Actonel and Fosamax alone (two drugs used by women for osteoporosis), the industry’s excess profits total more than $750 million. Buying Actonel through Medicare costs between $703 and $903, while it only costs $372 through the VA.

Why did this happen? One key reason is Billy Tauzin (R-LA), who was the chairman of the House Energy and Commerce Committee (which is responsible for overseeing regulation of the pharmaceutical industry) and a central player in the Medicare law’s creation. Tauzin was one of the principal authors of the Medicare bill, responsible for crafting key provisions including the bar on negotiating drug discounts. Then, less than two months after President Bush signed the new Medicare bill into law, Tauzin announced that he was retiring from Congress to take the job of president of PhARMA, the industry trade association, which reportedly pays him well over 10 times what he made as a Congressional representative. Even in the jaded world of Washington lobbyists, this move raised eyebrows and questions about whether Tauzin was negotiating for his new job while drafting the bill that became known as a bonanza for the same industry he hoped to join as a high-paid advocate.

State efforts to control drug prices

Some states are trying to control drug prices for Medicaid, state employee health plans, and other state programs, and there have been small victories. But, the pharmaceutical industry fights these efforts tooth and nail as well. And its influence at the state level is often just as strong as it is in Washington. Policy mechanisms that states are using include:

* Purchase pooling across states or across groups within states;

* Drug assistance programs that extend state-negotiated discounts to uninsured and low-income populations who are not eligible for Medicaid; and

* Use of clinical evidence to guide state drug purchasing decisions, promoting cost-effective use of drugs.

These initiatives are producing some good results in the few states that are trying them. But many state legislatures have rejected them for the same reason that the federal government set up the Medicare program as it did: drug companies’ lobbying, campaign contributions and political influence defeat needed reforms again and again. Pharmaceutical industry executives, employees, and political action committees donated more than $18 million to state political groups and candidates between 2001--2004. The industry spent $83 million in 2005 to defeat a California referendum that would have required pharmaceutical companies to give drug discounts to uninsured residents in order to be allowed to contract with Medi-Cal, the state’s Medicaid program. PhARMA has also challenged some state laws intended to control drug prices in court, although a recent Supreme Court ruling upheld a Maine state law that regulates drug benefits.

Political Will to Take the Reins

There are policy solutions that could improve the situation -- if we can muster the political leadership to implement them and the popular support to shore up those leaders. In addition to state efforts such as those discussed above, reforms that could make a difference include:

* New limits on, and stronger FDA oversight of, drug promotion. (Legislation is pending in the Congress to take steps in this direction);

* Lobby reform to reduce the disproportionate influence of industry over legislators; and

* Changes in trade policy that determine how intellectual property rules are applied to generic drugs in developing countries and to permit reimportation of drugs into developed countries. More far-reaching proposals address the underlying causes of high drug prices, such as reformulating patent rules.

 Policies that bring drug spending under control – whether by reducing prices or preventing unnecessary prescribing – can bring down out-of-control health care costs and improve health care. And we need to do both to have a hope of establishing a quality, affordable health care system that’s accessible for all. See the Center for Policy Analysis on Trade and Health, www.cpath.org, for more on the trade policy issue. To find out what you can do to support state health care reform efforts, including efforts to regulate drug spending, see the NWHN website (www.nwhn.org) or colleague sites such as the National Legislative Association on Prescription Drug Prices (http://www.nlarx.com) and the Universal Health Care Action Network (http://www.uhcan.org).

REFERENCES

1. Commonwealth Fund. Gaps in Health Insurance: an all-American problem. Findings from the Commonwealth Fund biennial health insurance survey, New York: Commonwealth Fund, 2006. p. 11-12.

2. Kaiser Family Foundation, Employer Health Benefits, Annual Survey, Menlo Park: Kaiser Family Foundation, 2005.

3. Anderson GF, Hussey PS, Frogner BK et al., “Health Spending in the United States and the Rest of the Industrialized World” Health Affairs 2005; 24:4, 903-914.

4. Asch SM, Kerr , Keesey J, et al. “Who is at greatest risk for receiving poor-quality health care?”, NEJM 2006; 354:11, 1147-56.

5. Smith C, Cowan C, Sensenig A, et al., “Health Spending Growth Slows in 2003”, Health Affairs 2005; 24:1, 185-194.

6. Chren M, Landefeld CS. “Physicians' behavior and their interactions with drug companies. A controlled study of physicians who requested additions to a hospital drug formulary.” JAMA 1994 Mar 2;271(9):684-9; Lurie N, Rich EC, Simpson DE et. al, “Pharmaceutical representatives in academic medical centers: interaction with faculty and housestaff.” J Gen Int Med 1990;5:240-243; Wazana A. “Physicians and the pharmaceutical industry: is a gift ever just a gift?” JAMA 2000 Jan 19;283(3):373-80.

Amy Allina is the NWHN's Director of Programs.