Jill Wechsler
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The new administration, Congressional leaders, payers, and providers are eager to transform the nation's health care system
to curb unnecessary spending and make coverage more fair and efficient. The main problem is that the U.S. health care bill
keeps rising faster than the rest of the economy, with little to show in quality improvement. Spending on pharmaceuticals
has slowed visibly but still is on the rise, drawing the attention of cost-cutters on all sides.
Reducing outlays for health care is an enormous challenge. The Congressional Budget Office (CBO) and the Centers for Medicare
and Medicaid Services (CMS) estimate that the nation will spend $2.6 trillion for health care in 2009—17% of gross domestic
product, which will rise to 20% of GDP by 2017. Federal expenditures for Medicare and Medicaid will grow from $720 billion
in 2009 to about $1.4 trillion by 2019, and the number of uninsured will rise from 45 million today to about 54 million in
10 years, says CBO, as health insurance premiums increase faster than income [see "Key Issues in Analyzing Major Health Insurance
Proposals," at http://www.cbo.gov/].
Drop for drugs
One bright spot for budget analysts is a slowdown in outlays for prescription drugs. In 2007, the growth rate for drug spending
hit a 45-year-low, according to the CMS Office of the Actuary. Expenditures on pharmaceuticals rose only 4.9% to $227.5 billion,
nearly half the 8.6% increase in 2006 and the slowest rate of growth since 1963. And prescription drug prices rose a paltry
1.4% in 2007, even less than the modest 3.5% price hike in 2006.1This trend was "one of the major factors driving down overall health care spending in 2007," explained CMS statistician Micah
Hartman: Outlays for health care grew only 6.1% in 2007 to $2.2 trillion, the smallest rate of increase since 1998. However,
health care still consumes a larger portion of the overall economy, as expenditures for hospitals, physicians, and other health
care products and services climb faster than inflation—a trend likely to be aggravated by the recession.
The spending slowdown for drugs, moreover, is not necessarily good news for innovator drug companies. Prices were held down
primarily by increased utilization of generic drugs, which accounted for 67% of drug dispensing in 2007, up from 63% in 2006,
CMS reported. That shift reflects more blockbuster drugs coming off patent, the expiration of six-month exclusivity periods,
and the establishment of multi-tier drug formularies that set higher copays for branded products.
Utilization declined in some therapeutic areas, CMS noted, due to more visible concerns about drug safety. A proliferation
of black-boxed warnings required by FDA discouraged patients and prescribers from using certain treatments. And fewer new
blockbuster drugs coming to market reduced the number of products able to command premium prices.
Despite restrained growth in prescription drug spending, actual outlays for pharmaceuticals continue to rise, projected to
total $264 billion this year. About $100 billion comes from government coffers, half of that involving the Medicare drug benefit,
making pharmaceuticals a prime target for the budget analysts.
FOBs and rebates
A lead cost-cutting proposal is to extend the power of generics to drive down spending for biotech therapies. CBO supports
such a move, estimating that the federal government could save $9.2 billion over 10 years by establishing an abbreviated pathway
for FDA to approve follow-on biologics (FOBs) [see "CBO Budget Options Volume I, Health Care," December 2008, http://www.cbo.gov/]. For its analysis, CBO assumes a 12-year exclusivity period for brand-name products and limited requirements for duplicating
innovator clinical trials.
Medicare would save the most, but other government health programs also would gain from access to less expensive biotech treatments.
The savings would be even greater (about $12 billion over 10 years) if the government also revised billing codes for biologics
dispensed by physicians under Medicare Part B. Placing an FOB in the same billing code as a brand-name counterpart would provide
a strong incentive for physicians to prescribe the lower-cost therapy because they would be reimbursed based on a weighted
average of the prices for all drugs with the same code.
