Ten Myths about the Market for Prescription Drugs
Myth No. 1: Americans Spend Too Much on Prescription Drugs
"Dollar for dollar, drugs give us a better return on health care spending than virtually any other health care option."
Actually, we spend too little. Dollar for dollar, drugs give us a better return on health care spending than virtually any other health care option. Yet many private insurance plans have less coverage for drugs than for hospital or physician care, and many reimburse drug expenses at lower levels. Medicare, the federal government's health insurance program for the elderly, pays for very few prescription drugs. This practice encourages elderly patients and the doctors who advise them to seek physician and hospital services when less costly drug therapies would have been preferable.
In many cases, the use of prescription drugs has reduced the cost of other health care services. Even greater savings are possible. For example, one recent study found that every dollar spent on drugs is associated with a $4 decline in spending on hospitals.2 The decline in total spending due to greater use of prescription drugs is particularly notable in the treatment of cancer, heart disease, Alzheimer's, AIDS and mental illness. The following are some examples.
Cancer
- A Swedish study of the direct costs for treatment of cancer patients from 1985 to 1996 found that as the costs for outpatient care and drugs increased, inpatient care costs - and total direct costs - declined.3
- The use of granulocyte colony-stimulating factor (G-CSF), a biotech product that boosts white blood cell counts, leads to more rapid blood recovery and is associated with shorter, more predictable hospital stays after high-dose chemotherapy. Although G-CSF is expensive, it does not increase the overall cost of treatment.4
Heart Disease
- After high-risk coronary angioplasty, aggressive efforts to control blood clotting with a new biotechnology product reduces heart attacks and the reclogging of arteries, with little or no additional cost over the cost of therapy that otherwise would have been required.5
- A study released by the Agency for Health Care Policy and Research in September 1995 concluded that increased use of a blood-thinning drug would prevent 40,000 strokes a year, saving $600 million. In economic terms, the lifetime cost of a stroke exceeds $100,000, while the average annual cost of drug therapy and monitoring is $1,025.6
Alzheimer's Disease
- The cost of new drugs to treat Alzheimer's is offset by a reduction in the costs of care due to enhancement in cognitive functioning and the delay of more costly disease stages and settings.7
- One study found that pharmaceutical disease interventions that have minor effects on patients' cognitive status may result in large savings in the costs of caring for moderately to severely demented home-dwelling patients with Alzheimer's.8
AIDS
- A study of HIV-positive male and female patients in the Canadian province of British Columbia found that triple drug combination antiretroviral therapy with a protease inhibitor saved more in hospitalization costs than the cost of the drugs.9
- Combination drug therapy of three medicines - including a protease inhibitor - can reduce the AIDS virus in many patients to undetectable levels, enabling them to return to work and reducing the need for hospitalization. The annual cost ranges from $10,000 to $16,000, compared to the $100,000-a-year cost of treating advanced AIDS in a hospital.10
Mental Illness
- A new drug for schizophrenia reduced inpatient costs at Texas state psychiatric facilities by an average of $27,850 per patient per year compared to the cost of treating patients with more conventional drugs, according to a 1999 study.11
- Researchers at the National Bureau of Economic Research found that the total cost of treating acute depression fell by 25 percent during 1991-95, thanks to the introduction of new medicines.12
Prescription drugs also do things other therapies cannot, and the introduction of new drugs is closely associated with an increase in quality of life and economic productivity. Drugs not only save lives, they can also make lives happier and more productive.