Navigating the Complexities of Healthcare Reform

Colin G. Miller

The cost of prescription medicines is an item that hits everybody directly in the USA when they or a family member gets ill. One target of the Inflation Reduction Act (IRA), passed by the current administration a year ago, was an attempt to reduce healthcare costs for prescription medicines as it is a very tangible expense for the general population. However, since prescription drugs are only about 10% of the total healthcare bill, this is arguably going to have an insignificant effect on the overall healthcare costs (less than 1%), but prescription medications were an obvious target, as they are 2.56 to 3.44 times higher than seen in 32 other nations according to the RAND report. Interestingly, generic drugs are 16% lower compared to the same countries and a larger percentage of the overall drug bill.

As has been noted, an effect of the IRA will be to change the R&D portfolios and R&D spend by the biopharmaceutical industry, although its impact is still too soon to see. According to Forbes: ATI Advisory’s analysis is simply an early snapshot and not indicative of the negative impact that the IRA is going to have on biopharma R&D. Sadly, this white paper will likely be cited by IRA proponents to show that the industry has not been damaged by the enactment of this law. That’s not the case. Not only will these companies feel a major impact, but patients and the healthcare system will stand to lose as fewer new medicines will be discovered in a timely manner.

The initial aim of the IRA was to reduce healthcare costs in the USA, which are running at close to 2x the average of other industrialized nations. Furthermore, life expectancy in the USA is falling and, equally as importantly, not rebounding after the Covid19 pandemic, which is the converse with the other benchmark countries. The graph below highlights this the increasing discrepancy, and the corresponding report, which was published in October 2023, provides more detail.

Graph taken from Peterson-KFF.

Without wishing to be political but using a scientific approach to the problem and solution, then the IRA approach is not the answer to the problem and may in fact make the issue worse, with less medicines being developed. When compared to the other benchmark countries, who all have a form of “healthcare for all”, then the USA, without spending any more money, could move to such a system and possibly create both a less expensive healthcare system and improve life expectancy. It perhaps goes without saying that, due to the trends we have seen, politicians and health insurance companies would not buy in on the logical lifesaving approach.

One critique (I am sure among many) that may be leveled at this argument, is why should the USA be charged “through the nose” for prescription medications? The first answer that comes to mind is why are we selling prescription medications to other countries at a lower cost? That is a free market economy at play within countries with much smaller populations, and the pharma industry is willing to sell them at lower cost. However, the optics of withdrawing these medications to other countries unless they paid more would probably not be tenable.

Furthermore, this does not consider the other aspect generic medications, which are arguably the larger slice of the prescription medication market and significantly less expensive in the US. The other facet to this discussion regarding the US pricing, is the difference in list verses net pricing: the reports show that while the list drug price has continued to increase, the net revenue to the pharma industry has remained flat, predominantly caused by the increased required discounting by the pharmacy benefit managers (PBM’s). The net effect is that the IRA is designed to affect the voters’ pocketbook and not get to the root problem: unintended consequences that have global health ramifications.

As we continue to evaluate the effects of the IRA and its implications for the broader healthcare landscape, it is evident that a nuanced approach is essential in crafting effective solutions. While the notion of universal healthcare presents an enticing prospect from a financial and ethical perspective, its feasibility and acceptance in the US remain subjects of contention and unlikely to change regardless of the outcome of the election later this year. The intricate dynamics of international drug pricing further complicate the pursuit of a comprehensive solution. The path to sustainable healthcare reform demands a rigorous examination of policy across both the life sciences and the federal government, with a “sharp eye” on the potential long-term impacts on innovation, accessibility, patient costs, and overall health outcomes.

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