U.S. health care spending increased to $3.3 trillion in 2016, with out-of-pocket health care costs borne directly by consumers rising 3.9 percent — the fastest rate of growth since 2007.
The findings, published Wednesday by Health Affairs, are considered the authoritative breakdown of American health care spending and are prepared each year by the Centers for Medicare and Medicaid Services.
The overall rate of increase in health care spending experienced a slight slowdown over the previous year, driven in part by the expected moderation in growth after the expansion of insurance coverage through the Affordable Care Act. There was also a sharp decrease in the growth of prescription drug expenditures, as hepatitis C treatment costs have declined and fewer patients are receiving them.
The slowdown in spending growth — a 4.3 percent increase in 2016, following a 5.8 percent growth the previous year — stemmed from changes in a broad array of health care sectors.
That ranged from slower growth in Medicaid spending after the surge in enrollment caused by the Affordable Care Act expansion, to a marked slowdown in prescription drug spending growth that had been pushed higher by the approval of a new, expensive treatment for hepatitis C in 2013.
A shift toward insurance plans that transfer more of the burden of health care costs onto patients helped fuel the rise in out-of-pocket costs. In 2016, 29 percent of people who receive insurance through employers were enrolled in high-deductible plans, up from 20 percent in 2014. The size of the deductibles also increased over this time period, a 12 percent increase in 2016 for individual plans, compared with a 7 percent increase in 2014.
Out-of-pocket spending grew the most on medical equipment and supplies and decreased slightly for prescription drugs, according to the analysis.
The most noticeable change was a big slowdown in prescription drug spending growth, which made up 10 percent of the total spending, or $328.6 billion. (That spending number does not include drugs administered by physicians or hospitals.)
That decrease highlights the effect that expensive new treatments used by large numbers of people can have on national spending. A new generation of expensive hepatitis C drugs drove national drug spending 12.4 percent higher in 2014 and 8.9 percent higher in 2015. In 2016, the prescription drug spending increased by 1.3 percent, closer to the rates in the years before the new drugs were approved.
The authors of the report attributed that trend not just to hepatitis C drugs. There were also fewer new, brand name drugs approved in 2016 — 22 new drugs, compared with 45 the previous year. Another factor was a slowdown in the growth of spending on insulin, a lifesaving drug for people with diabetes, in Medicare.
Insulin prices have been under intense scrutiny as drugmakers have increased the list prices of insulin while claiming the true cost to patients has remained flat due to discounts and rebates
Health care spending has been buffeted by unusual changes during the past decade. There was a historic slowdown in growth due to the Great Recession, and then the Affordable Care Act’s expansion of health insurance coverage fueled spending.
The authors said this year’s trend of slower growth could be a sign that things were returning to normal.
“Future health expenditure trends are expected to be mostly influenced by changes in economic conditions and demographics, as has historically been the case,” the authors wrote.
As President Donald Trump talked tax reform on Capitol Hill Tuesday, Arkansas patient advocate Andrea Taylor was also meeting with lawmakers and asking them to save a corporate tax credit for rare-disease drug companies.
Taking the credit away, Taylor said, “eliminates the possibility for my child to have a bright and happy future.”
Taylor, whose 9-year-old son, Aiden, has a rare connective tissue disorder, spoke as part of a small rally thrown together this week by the National Organization for Rare Disorders (NORD) — the nation’s largest advocacy group for patients with rare diseases.
Earlier this month, House Republicans proposed eliminating the orphan drug tax credits, which Congress passed as part of a basket of financial incentives for drugmakers in the 1983 Orphan Drug Act. The law, intended to spur development of medicines for rare diseases, also gives seven years of market exclusivity for drugs that treat a specific condition that affects fewer than 200,000 people.
The Senate Finance Committee, led by Sen. Orrin Hatch (R-Utah), put the tax credit back into the tax legislation. After some negotiations, the committee settled on reducing the credit to 27.5 percent of the costs of preapproved clinical research, compared with the current 50 percent. The committee also restored a provision that would have eliminated any credits for drugmakers who repurpose a mass-market drug as an orphan.
“As with any major reform, tough choices have to be made,” a Hatch spokesperson wrote in an emailed statement, adding that the senator will continue to work “to make the appropriate policy decisions” to deliver a comprehensive tax overhaul.
Hatch, a member of a rare-disease congressional caucus, received $102,600 in campaign contributions from pharmaceutical and related trade group political action committees in the first half of 2017, making him the top recipient of pharmaceutical cash in the Senate.
If the Senate provision remains untouched, reducing the tax credit would save the federal government nearly $30 billion over a decade, according to a markup of the bill released late last week.
Orphan drug development has become big business in recent years and advocates as well as critics of the industry say tax credits have been an important motivation for companies. Orphan drugs accounted for 7.9 percent of total U.S. drug sales last year, according to a report released by QuintilesIMS and NORD.
Because patient populations for rare-disease drugs are relatively small, companies often charge premium prices for the medicines. EvaluatePharma, a company that analyzes the drug industry, estimates that among the top 100 drugs in the U.S. the average annual cost per patient for an orphan drug last year was $140,443. Giant pharmaceutical companies such as Celgene, Roche, Novartis, AbbVie and Johnson & Johnson have led worldwide sales in the orphan market, according to EvaluatePharma’s 2017 Orphan Drug Report.
Jonathan Gardner, the U.S. news editor for EvaluatePharma, said the orphan drug tax credit is “probably the most important incentive for developing an orphan drug.” Cutting the credit will force even the large companies to question development of drugs for rare diseases, Gardner said.
Dr. Aaron Kesselheim, an associate professor of medicine at Harvard Medical School, has been critical of the Orphan Drug Act’s incentives and of companies taking advantage of the law’s financial incentives for profit. But he warned against rushing to eliminate the tax credit.
“We need to think about ways we can improve the Orphan Drug Act and stop people from gaming the system and exploiting it,” Kesselheim said. But there “are a lot of rare diseases that don’t have treatments. So, we need to be careful in making changes.”
The battle over the tax credit is the latest controversy for the Food and Drug Administration’s orphan drug program. FDA Commissioner Scott Gottlieb announced a “modernization” plan for the agency this summer, closing a pediatric testing loophole and eliminating a backlog of corporate applications for orphan drug status. And, this week, the agency confirmed that Dr. Gayatri Rao, director for the Office of Orphan Products Development, is leaving.
Meanwhile, the Government Accountability Office confirmed this month that it recently launched an investigation of the orphan drug program. The GAO’s review was sparked by a letter from top Republican Sens. Hatch, Chuck Grassley (R-Iowa) and Tom Cotton (R-Ark.), asking the agency to investigate whether drugmakers “might be taking advantage” of the drug approval process.
When the 1983 Orphan Drug Act was passed, the law described an orphan drug as one that affects so few people that drugmakers might lose money after covering the cost of developing a drug. Congress added the 200,000-patient limit in 1984.
Today, many orphan medicines treat more than one condition and often come with astronomical prices. Many of the medicines aren’t entirely new, either. A Kaiser Health News investigation, which was also aired and published by NPR, found that more than 70 of the roughly 450 individual drugs given orphan status were first approved for mass-market use, including cholesterol blockbuster Crestor, Abilify for psychiatric conditions, cancer drug Herceptin and rheumatoid arthritis drug Humira, which for years was the best-selling medicine in the world.
More than 80 other orphans won FDA approval for more than one rare disease and, in some cases, multiple rare diseases, the KHN investigation showed.
The pharmaceutical industry has had a muted response to the tax bill, which includes a corporate tax cut. The powerful industry lobbying group PhRMA said it is pleased Congress is looking at overhauling the tax code but “encourages policymakers to maintain incentives” for rare diseases. BIO, the Biotechnology Innovation Organization that represents biomedical companies, said it was “gratified” the Senate committee chose to partially retain the credit but would prefer to keep the existing incentive.
The group that rallied Tuesday — wearing bright-orange shirts that read “Save the Orphan Drug Tax Credit” — planned to meet with a couple of dozen lawmakers, including Grassley, who is a member of the Senate Finance Committee.
NORD, like many patient advocacy groups, receives funding from pharmaceutical companies, but the organization’s leaders say the industry does not have members on the board and does not dictate how general donations are spent.
On Tuesday, NORD leaders said they are open to discussions about the tax credit and whether the overall law is working as intended.
“We’re here to have that conversation, we’re ready to have that conversation,” said Paul Melmeyer, director of federal policy for NORD. “Sadly, that’s not the conversation we are having today.”
Abbey Meyers, a founder of NORD and the leading advocate behind passing the initial 1983 law, said she fears the high cost of the drugs will make it impossible to sustain the orphan drug program. Now retired, Meyers said she has followed the law’s success over the years and believes the tax credit should not be changed.
“There are other things that have happened since the law was passed where there wasn’t any logic to what they did,” Meyers said, adding “because somebody went to a senator and they put into the law.”
Milton Packer wonders if people suffer and die because it is cost effective.
As everyone knows, we are in the midst of a horrific opioid addiction epidemic. Physicians are prescribing opiates for pain relief, and patients are becoming addicted to them. One-fifth of patients who receive an initial 10-day prescription for opioids will still be using opiates a year later. That is simply extraordinary.
Physicians are prescribing opiate formulations that are highly addictive. But they do not need to do that.
There are several newer formulations that relieve pain and are far less addictive than older agents. But they are prescribed uncommonly. Why is that?
It is not because physicians are uninformed.
It is because payers will not pay for the alternatives. The less-addictive opiates are more expensive, so payers have declined to support them. Patients get addicted because paying for highly addictive opiates saves the payers money.
The New York Times also noted that the treatment of opiate addiction is expensive. It is far cheaper for payers if physicians continue to prescribe opiates than if physicians enrolled a person into a drug addiction program.
What does that look like? Patients get more prescriptions for opiates instead of getting the help they need.
The Payers Are in Charge
If you are looking for someone to blame for the opioid epidemic, you can certainly blame physicians. You can blame pharmaceutical companies. But while you are at it, don’t forget to include payers.
This conclusion should not be surprising. We live in a world where payers — not physicians — determine what drugs and treatments patients receive.
If patients have a life-threatening condition, it is not unusual for a payer to demand that a physician first prescribe a cheaper and less effective alternative. Physicians know that the drugs they are allowed to use may not work very well, but frequently, payers demand that they be tried first anyway.
What happens if the patient doesn’t respond to the cheap drug?
Often, the physician continues to prescribe it, because — to gain access to the more effective drug — physicians need to go through a painful process of preauthorization. For many practitioners, it isn’t worth it.
Don’t patients eventually get the drugs that they need?
No. All too often, physicians stop trying. Or patients get frustrated and give up. Often, payers says “No!” no matter how many times they are asked. And if the drug is for a life-threatening illness and enough time passes by, then the patient may no longer be alive to demand that they get the right drug.
So we spend more for healthcare than any other country in the world, but Americans do not get the care they need. There is a simple reason. Treatment decisions are not being driven based on a physician’s knowledge or judgment. They are being driven by what payers are willing to pay for.
How many people are affected by all of this?
That includes me and my family. That includes everyone that I know.
Medicine has made incredible progress in the last 20-30 years. But you are not likely to benefit from it.
Do you want to blame the high cost of drugs? You can do that, but if you do, you will be missing the point. We should expect better drugs to be more expensive than less effective ones. But we do not expect to have a company decide that we will get the inferior drug simply because they want to make a profit.
Are payers the leading cause of death in the United States? If you think this is a crazy question, please think again.
In an era of rising health care spending and constrained budgets, U.S. policymakers and payers have tried to shift providers’ financial incentives from those that pay for greater volume of care to those that pay for high-value care. This move from volume to value is in its early stages, with most payment still based on old fee-for-service models.1
However, fueling the move to value-based purchasing are provisions in legislation such as the Affordable Care Act of 2010 and the Medicare Access and CHIP Reauthorization Act of 2015. These provisions encourage providers to participate in risk-bearing arrangements and institute programs that base Medicare reimbursement on patient clinical outcomes measures, such as hospital readmission rates. Private payers have initiated similar performance-based incentive programs and risk-sharing arrangements for hospitals and physicians.
In this vein, some pharmaceutical manufacturers and private payers are seeking to apply an outcomes-based pricing model to the prescription drug market. Prices for brand-name drugs have risen far above increases in the consumer price index.2 According to a Kaiser Health Tracking Poll, 77 percent of Americans consider prescription drug costs to be unreasonable.3 Prescription drug spending is mostly driven by high-price, brand-name drugs, which account for about 12 percent of prescriptions but 72 percent of total drug spending.4
One response to these high prices has been increased interest in outcomes-based contracts, which tie rebates and discounts for expensive pharmaceutical products to the outcomes observed in the patients who receive them. Outcomes-based contracts are touted as possible ways for purchasers — such as insurers and health care systems — to improve value. That is because under such contracts, purchasers pay more for a drug when it works and less when it does not. However, whether such arrangements can achieve this goal remains controversial.
To gain insight into the benefits and limitations of outcomes-based pharmaceutical contracts, we interviewed pharmaceutical economics experts and individuals involved in developing these contracts, including those affiliated with pharmaceutical benefits managers and health plans. In this issue brief, we review the main themes that emerged from these data and evaluate whether these arrangements can help improve the value of pharmaceutical spending.