The Truth About Drug Spending

  • by: |
  • 01/29/2008
Article published Jan 29, 2008 The Washington Times
Health care spending

January 29, 2008

By Robert Goldberg - What do Hillary Clinton and the recent government data on prescription drug spending have in common? In both cases, the mainstream media got it wrong. Just days ago every reporter and pundit were predicting that Mrs. Clinton was on the verge of a major blowout in New Hampshire and that Barack Obama's nomination was virtually assured. We know what happened. Now of course, the media is furiously spinning in the other direction, calling her victory "historic" and the election a "horserace." Until the next primary.

With prescription drug spending, the media of course reported that it increased in 2006 by about 8.5 percent, more than last year because of increased Medicare drug spending. Health care spending went up overall too, by about 6.7 percent about the same as last year. So all the headlines and stories claimed that "drug spending fueled rising health care costs" "Drug benefit fuels Medicare spending" and so on.

But the press got that wrong too. And unlike electoral politics, the pundits didn't have to rely solely on exit polls and recycled "experts" for the intelligence estimates. They were all working from the same study, which was published in Health Affairs.

Drug spending for Medicare did increase. But that's not news because when you give 39 million people a new drug benefit that's going to happen. Apart from the fact that the Medicare Part D program is running at 20 percent under budget estimates, it is not fueling Medicare spending overall. Quite the opposite.

Even as drug spending has increased by nearly 9 percent as a percentage of total health care spending its share remains about the same. If it's fueling the rise in spending it is very efficient fuel. Indeed, the increase in drug spending corresponds nationally with a decline in the rate of increase in spending in hospitals, nursing homes and visits to the doctor.

Could it be that more drug spending is driving down the rate of increase in other health care spending, particularly in Medicare? Public money (mostly Medicare and Medicaid) pays for about half of those other expenses. The surge in drug spending, which includes a shift of the Medicaid drug population to Medicare coincides with this decline in spending in other areas.

What's more, the goal of the Medicare Part D program was to reduce the cost of prescription drugs for people with limited incomes and chronic illnesses. It has accomplished that. Studies have shown, most recently another study in health affairs, that by eliminating the co-payments for prescription drugs, people use more medicines. When that happens their chronic illnesses such as diabetes, blood pressure and depression improve. They use other, more expensive health care services, less often. They are happier and healthier. Which is the real value of medicine in the first place.

Does this relationship apply for seniors in general? It would be great to see more research done using current Medicare beneficiary data. According to earlier work by my colleague Frank Lichtenberg, Courtney Brown Professor of Economics at Columbia University's School of Business, it does. Access to newer drugs costs more money but is offset by a reduction in hospital, home health care and physician costs according to Dr. Lichtenberg's research.

In other words, the value of the Part D program is not just that it makes drugs affordable but that it makes new medicines rapidly available as well. Efforts to restrict access to new drugs through co-pays and formularies would not only discriminate against the poor and chronically ill, it would actually drive up spending across the board. (Dr. Lichtenberg has also found that Medicare Part D has increase drug usage by less than 5 percent nationally. So much for claims that it created a huge windfall for drug firms. ) What's news is that the media, which was so quick to bill the Medicare prescription drug program as a failure two weeks into it's existence, once again rendered a snap judgment so far from reality that it should have used Narnia as its dateline.

James Q. Wilson has observed that journalism, like so much scholarship, now dwells in a postmodern age in which truth is hard to find and statements merely serve someone's interests. Health care will be an important issue in the coming campaign. Accuracy is always a casualty of electioneering. Too bad journalists are increasingly part of the problem whether it's coverage of candidates or the concerns that shape our vote in the first place.

Robert Goldberg is vice president of the Center for Medicine in the Public Interest.

Center for Medicine in the Public Interest is a nonprofit, non-partisan organization promoting innovative solutions that advance medical progress, reduce health disparities, extend life and make health care more affordable, preventive and patient-centered. CMPI also provides the public, policymakers and the media a reliable source of independent scientific analysis on issues ranging from personalized medicine, food and drug safety, health care reform and comparative effectiveness.

Blog Roll

Alliance for Patient Access Alternative Health Practice
Better Health
Biotech Blog
CA Medicine man
Cafe Pharma
Campaign for Modern Medicines
Carlat Psychiatry Blog
Clinical Psychology and Psychiatry: A Closer Look
Conservative's Forum
Club For Growth
Diabetes Mine
Disruptive Women
Doctors For Patient Care
Dr. Gov
Drug Channels
DTC Perspectives
Envisioning 2.0
FDA Law Blog
Fierce Pharma
Fresh Air Fund
Furious Seasons
Gel Health News
Hands Off My Health
Health Business Blog
Health Care BS
Health Care for All
Healthy Skepticism
Hooked: Ethics, Medicine, and Pharma
Hugh Hewitt
In the Pipeline
In Vivo
Internet Drug News
Jaz'd Healthcare
Jaz'd Pharmaceutical Industry
Jim Edwards' NRx
Kaus Files
Laffer Health Care Report
Little Green Footballs
Med Buzz
Media Research Center
More than Medicine
National Review
Neuroethics & Law
Nurses For Reform
Nurses For Reform Blog
Opinion Journal
Orange Book
Peter Rost
Pharm Aid
Pharma Blog Review
Pharma Blogsphere
Pharma Marketing Blog
Pharmacology Corner
Pharmaceutical Business Review
Piper Report
Prescription for a Cure
Public Plan Facts
Real Clear Politics
Shark Report
Shearlings Got Plowed
Taking Back America
Terra Sigillata
The Cycle
The Catalyst
The Lonely Conservative
Town Hall
Washington Monthly
World of DTC Marketing
WSJ Health Blog