The definition of “Green Shoots” is any sign of growth, recovery and renewal. Finally, this weekend the New York Timesfront-page article showed that the spending for healthcare is slowing down. The most interesting part of the article is they show that the results go beyond what would be expected just based on the economic slowdown. Growth in Medicare slowed down, and since seniors have guaranteed health benefits, that would indicate something beyond the economy taking place. Some of the biggest slowdowns were in states least impacted by the recession. In other words, things do seem to be changing!
The growth in healthcare spend in 2009 and 2010 stayed below 4% per year and this has allowed the percent of spend to GDP to stay below 18%. The article points out that behavior has changed. Physicians are backing down somewhat on the amount spent on seniors in hospitals and the use of expensive branded pharmaceuticals has, as we know, also slowed. The work done setting up accountable care organizations (government and commercial) and the explosion of high deductible health plans seem to have both contributed to this trend. People are taking responsibility and this seems to be motivated through financial incentives. The cost curve seems to be bending.
The progress seen over the last few years is certainly encouraging and now it is time to focus on how to keep this going. One of the key groups that needs to weigh in if this is to continue is the branded pharmaceutical companies. It is one thing to save money by switching from brands to generics and with the patent cliff still with us this trend could continue to help, but it is not enough. One of the most important conclusions in the article is that the critical factor in these lower costs is keeping people out of hospitals and emergency rooms.
Keeping people out of hospitals and emergency rooms is just what drugs do! The pharmaceutical industry may be the catalyst that really keeps this trend continuing. Now that generics control roughly 85% of all prescriptions, there is not much upside to merely switching more away from the brands. There is some, but I would hate to count on this to really solve the longer-term issue.
It would seem that branded pharmaceutical companies should divide their drugs into two categories. For those where there is real proof they prevent hospitalizations and ER visits and where they do it better than generics, there should be a huge push around this issue. This is where the majority of time, effort and promotional budget should be spent. Accountable Care Organizations, government, patients and insurers should be very supportive of this as all will benefit. For drugs that are not able to prove there is economic value by preventing long-term costs, then perhaps companies need to lower the price to go for shorter-term gains.
Let’s take a step back and evaluate the role of branded pharmaceuticals. Drugs should be viewed as a benefit to the overall system rather than a cost. They account for only 10% of the overall actual cost to the healthcare system, but this does not account for how much money they save by preventing other costs. I would love to see a publicized analysis of the net benefit drugs have on the system, that is the cost saving for prevented hospitalizations and ER visits minus the actual drug costs. My bet would be that this would be a huge positive number. The other critical role drug companies play is around compliance and adherence. Trial cards, samples and patient education driven by the branded sector of the industry are tools that in the long-run prevent the huge costs of uncontrolled disease. The more the right branded products are used, if priced correctly, the better will be the overall economic results to the system.
The month of May has arrived and we are seeing green shoots all around. We need to take great care of these shoots if they are going to continue to grow. The industry needs to really step up and embrace the role we play in the economics of healthcare. The story is very positive, but it will require incredible execution to get the message out that proper use of properly priced drugs will be the catalyst for healthcare savings to accelerate. Let’s do it.