Drug Giants Can Save America Billions. But Will They?

(Bloomberg Opinion) -- Pharma and its drug-pricing practices have come under fire from critics on the right and left, and from lawmakers on Capitol Hill to Donald Trump’s White House. But amid the political bashing, here’s something that may come as a surprise: The industry managed to save taxpayers some money.

That conclusion comes out of a recent study in Health Affairs from Harvard economist and Obamacare architect David Cutler, which sought to identify the reasons behind a mysterious slowdown in health-care spending among older Americans in recent years. He calculates that Medicare spending per beneficiary grew by 3.8 percent annually between 1992 and 2004 on an inflated-adjusted basis; since 2005, though, the growth rate has slowed to just 1.1 percent. In 2012 alone, spending was nearly $3,000 lower than expected.

Cutler and his co-authors found that half of the total slowdown came from reduced spending on treatments for cardiovascular events like heart attacks and related conditions. Half of that effect was attributed to greater use of some of pharma’s best-sellers: medicines targeting risk factors such as high blood pressure and elevated cholesterol, as well as chronic conditions like diabetes, which have proven effective. That was helped along by Medicare Part D in 2006, which lowered drug costs for seniors.

Drug Giants Can Save America Billions. But Will They?

This a huge deal in health policy. The idea that preventative care should push future spending down seems perfectly obvious. But it’s has been difficult to actually prove it. It is also a win for drugmakers. Pharma firms love to argue that their medicines can save money in the long run when justifying pricing and pushing for broad access.

There’s potential for even greater savings going forward. More people have been on preventative medicines for longer since this data was collected. A number of important cardiovascular drugs have gone generic, which has further expanded access and affordability. Important new medicines have been developed as well. 

Drug Giants Can Save America Billions. But Will They?

This being pharma, there are caveats to this good-news story line. If the industry wants to tout cost saving talking points and have a sustained positive impact on spending, it needs to change some troubling trends. Drugmakers’ aggressive pricing, for instance, has led insurers to throw up barriers to impactful new drugs and made it hard for patients to consistently afford even older medicines. 

Another potentially worrisome development is pharma’s move away from the sorts of relatively low-cost and widely used medicines that delivered these cost savings and toward expensive drugs designed for small populations. Such medicines are often easier to develop and face a lower regulatory bar. They command premium prices, face less competition and insurer resistance, and require less marketing. Sanofi announced exactly such an R&D pivot last week, and it’s not alone. AstraZeneca PLC’s better-than-expected fourth-quarter earnings results Thursday and its long-sought return to sales growth come on the back of a shift to cancer medicines.  

Cutler’s research is a powerful reminder of how important drug innovation will be as the population continues to age. But it’s also an argument for finding ways to nudge pharma to more consistently emphasize volume over price, and prevention and primary care over narrow markets and pricing power.  

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Max Nisen is a Bloomberg Opinion columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

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