NCPA - National Center for Policy Analysis


July 7, 2009

Chronic diseases, such as cancer, heart disease and diabetes, account for 75 percent of all health care spending in America today.   And that's why it is vitally important that we focus reform efforts on disease prevention and management, says Billy Tauzin, President and CEO, Pharmaceutical Research and Manufacturers of America (PhRMA).

Studies show that medicines can be one of the most effective ways to fight chronic diseases and reduce costs.  They often prevent patients from developing full-blown disease and help to drive down the cost of surgery and hospitalization, says Tauzin: 

  • What's more, medications account for only 10 cents of each health care dollar.
  • IMS Health reports show that last year, spending on prescription medicines grew by just 1.3 percent over 2007; that is the lowest growth rate since 1961.

The ability of medicines to help patients avoid full-blown disease and death can be profoundly dramatic, says Tauzin:

  • For example, a study published in the journal Health Affairs in 2007 found that 89,000 premature deaths and about 420,000 hospitalizations could have been avoided if blood pressure medicines had been more widely available and properly used.
  • Another study by economist Frank R. Lichtenberg says each dollar spent on new medicines results in more than $6 in health care savings.

As part of health care reform, we need to address the consequences of patients not taking their medicines as prescribed -- non-adherence costs America $100 billion to $300 billion a year in avoidable hospitalizations, surgeries and nursing home admissions, says Tauzin.  We also need to preserve and develop policies that foster medical innovation.  Without the development of new treatments and delivery systems, the number of cases of Alzheimer's disease and other diseases could increase dramatically.  Patients and our national economy would suffer.

According to John C. Goodman, President, CEO and the Kellye Wright Fellow with the National Center for Policy Analysis, some patients have difficulty buying some expensive drugs, but in general, the cost of drugs is not a social problem.  To the contrary, the return we are getting on drugs, at the margin, is higher than the return we are getting on doctor or hospital therapies.  We should be spending even more than we currently spend to encourage more research and development.

If there is a social problem, it is that we are underutilizing drugs for most chronic conditions.  But in most cases, more third-party insurance is not the answer.  Rather, we need more self-insurance (through HSA's, for example) so that people can directly manage their own health care budgets, explains Goodman.

Source: Marilyn Werber Serafini, "Addressing Drug Costs: Is The Drugmaker Commitment Enough?" National Journal, July 6, 2009.

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