It’s Working

Big news came out last week on the cost of healthcare.  In 2012 the overall cost of healthcare once again rose at a modest year-over-year level, being up only 4.3%.  This is now the fourth year in a row this increase has been right at about 4% which is much better than what had been predicted.  The actual prices for healthcare rose only 2% in 2012.  Could it be that things are starting to get a little more under control?  It may be a coincidence that many reforms such as ACO’s are being implemented in response to the Affordable Care Act or at least this may have been the stimulus to increase what was already germinating.

The interesting thing about this is that, although the economy and unemployment plays a role, it appears to be much more than just that.  There seems to be some structural change really taking place.  Take a look at one of the many articles written last week on this topic and note the positive optimism.  This New York Times piece notes that this slowdown comes in both government and commercial spending. There appears to be some cautious optimism based on these numbers and nobody is suggesting that the problem of healthcare costs is behind us.  The article suggests that both doctors and hospital executives recognize that change is needed and significant change has already been implemented.  They know there is no going back to the old way of doing things.  Perhaps the most interesting point is that the slowdown, or bending of the cost curve, seemed to begin before the recession and has remained bent even as the economy has begun to recover.  This is evidence that the change may be sticking.

What this trend means for the future is incredible.  Already the Congressional Budget Office (CBO) has lowered their Medicare and Medicaid estimates for 2020 by $200 billion or about 15%.  This doesn’t solve the future debt problem completely but it certainly does help.  This shouldn’t surprise those of us in the pharmaceutical industry as we have seen tremendous downward pressure on our pricing and a massive switch from branded drugs to generics.  Our launches, which used to fuel company growth, have slowed considerably.  Discounts are deeper and co-pay vouchers are needed for almost every branded product.  Physicians, consumers and payers are all on the same page when it comes to saving money on drugs.  There is a new reality and we need to wrestle our way through the change.

Perhaps it is time to join the trend rather than fight it.  Now is the time to really show the value of pharmaceuticals as the change needed goes well beyond the simple steps of using more generics and eliminating waste.  We must prove that by using our drugs we will actually take more out of the system then the drugs cost.  Yes, there we must prove there is a positive benefit to cost ratio.  We need to price our drugs so that this really does work.  We need to help ACOs and those involved in formulary decisions for drugs on the health insurance exchanges.  We need to make sure we price our drugs for access for lower income people who use Medicaid and those that will be newly insured in 2014.  These groups may be in greater need for our products than anyone else and with proper use here, the system could save tremendous amounts of money.

More than anything else the people of our industry need to join in the battle to control costs of healthcare.  We can’t assume everyone else will change and our industry will be able to continue doing business as usual.  We need to be a part of the fight right along with our customers.  Yes these include the government, commercial insurers, patients and payers.  We need to make sure we have the economic skills to clearly understand the financial trends taking place and be able to talk the talk and walk the walk around healthcare reform.  Things definitely seem to be working and now is the time for our industry to take a leadership role.

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