Beyond Insurance: Health Costs - Part IV: Prescription Drugs

As the historic vote in House for health care reform nears, I am going to bring to conclusion my series on measures targeted at slowing down the growth, and ultimately reducing, of actual health care costs and not just of health insurance.  Today, I will be focusing on parts of the bill that are geared to reduce prescription drug expenses.  The overall potential savings will depend not just on provisions that directly reduce prescription drug expenses but also provisions that reduce prescription drug consumption, resulting in an overall reduction in cost.

In a research study published in September of 2008, the Kaiser Family Foundation noted that in 2006, almost $220 billion was spent on prescription drugs, nearly 10% of our total spending on health care.  The growth rate of prescription drug spending also outpaces those of hospital and physician services.

So let's think, for a minute, about what can reduce prescription drug costs.  Two things: first, for those who require prescription medication, using generic drugs wherever possible in place of brand name drugs, or paying less, somehow, for the brand name drugs.  Second, finding ways to prevent the need for prescription drugs, as much as possible in the first place.

The underlying Senate bill takes a crack at doing all of the above.

Medicaid: Lowerring prices paid for prescription drugs under public programs:
Sec. 2501. Prescription drug rebates. The flat rebate for single source and innovator multiple source outpatient prescription drugs would increase from 15.1 percent to 23.1 percent, except the rebate for clotting factors and outpatient drugs approved by the Food and Drug Administration exclusively for pediatric indications would increase to 17.1 percent. The basic rebate percentage for multi-source, non-innovator drugs would increase from 11 percent to 13 percent.
These are of course very modest drug industry concessions, but it is a start.  Medicaid is responsible for over a quarter of our nation's total prescription drug spending.  Not only does the health care reform bill provides greater discounts on drug prices for Medicaid recipients, but at the same time, it also extends Medicaid and SCHIP coverage to 16 million additional Americans, according to CBO's latest report. But it isn't just Medicaid beneficiaries who pay Medicaid rates for prescription medication.

Medicare: A 75% rebate from drug companies on brand name in the reconciliation package
Sec. 1101. Closing the Medicare prescription drug “donut hole”. Provides a $250 rebate for all Medicare Part D enrollees who enter the donut hole in 2010. Builds on pharmaceutical manufacturers' 50% discount on brand-name drugs beginning in 2011 to completely close the donut hole with 75% discounts on brand-name and generic drugs by 2020.
This discount by pharmaceuticals  in the donut hole is an actual reduction in cost - it's not subsidized in any other way.  It's not a discount that the government pays for rather than seniors.  It's all savings.  And it's savings for those who use prescription drugs at the highest rates - seniors.

Generics: The vast majority of the brand name dugs in the market today also have generic equivalents.  Even for those that do not, similar drugs are available to treat the same conditions more often than not.  An alternative treatment based on a generic may not always be available, of course, but when it is, the savings are considerable:
In 2004, the average price of a generic prescription drug was $28.74, while the average price of a brand-name prescription drug was $96.01, according to the National Association of Chain Drug Stores.
That's an more than a 3:1 potential savings in applicable cases.  I noted in the first article of this series I noted that the proper implementation of electronic medical records alone would save $4.5 billion a year in adverse drug costs.  Additional savings are likely to be realized as a electronic medical records pervade the system and the use of FDA's database of generic and brand-name drugs gain greater usage.

Last but not least, the greatest saving potentials lie in avoiding the need for expensive prescription medications to begin with - in wellness and prevention.  I discussed wellness provisions of the current legislation in detail in Part III of this series; prevention was discussed in Part II.  The focus on primary care, prevention and wellness will help reduce and better manage chronic illnesses, reducing the need for prescription drug overload.

Now, of course, I would like stronger measures, including drug re-importation.  That is, though, but one example of how we must continue to work on better reforms once the current reform is passed and signed into law.  This, as I have said before, is not the end of the fight for health care reform.  This is the beginning.  This is the solid foundation that we can build on.