06 Oct The world according to Gingrich: Is the U.S. healthcare system broken?
I recently attended the Advamed annual conference in Washington, D.C. and high on the agenda of discussion topics was healthcare reform in the U.S. Advamed, for those of you not aware of this organization, stands for Advanced Medical Technology Association and is the world’s largest medical technology association representing manufacturers of medical devices, diagnostic products, and medical information systems.
On the agenda for this meeting included keynote presentations from Newt Gingrich, former Speaker of the U.S. House of Representatives, the healthcare advisors for both Senators John McCain (Gail Wilensky) and Barack Obama (David Blumenthal MD), and Senator Hilary Clinton. I had great expectations for the last three, particularly Hilary, who had led the charge on healthcare reform when bill came into the White House. I was greatly surprised by Newt Gingrich, who spoke for the better part of an hour without notes but with far greater fluidity and precision than the other speakers, including Hillary, about his perspective on healthcare reform in the U.S.
Let me preface this by saying that the U.S. is reputed to have the best healthcare system in the world in terms of state-of-the-art hospitals, medical equipment, diagnostics and imaging equipment, and even drugs. American consumers, however, pay a price for this healthcare, and a key issue going forward is the continuing ability for the American consumer to continue to pay the price for such innovation. With 45 million persons uninsured in the U.S. today and a larger number under-insured, can Americans really afford this level of healthcare? Other countries such as Canada, the U.K., and the Scandinavia countries opt to try and get the greatest good for the greatest number of their citizens by settling for somewhat lesser levels of innovation.
The Gingrich Doctrine
Back to Newt Gingrich, who has just come out with a book entitled “Real Change: From the World that Fails to the World that Works.” This tome reviews the need for change in several sectors of the U.S., including: immigration policy, Social Security, balancing the national budget, environmental issues, national security, air and rail transportation, prison reform, and Homeland Security, but his comments on healthcare reform were his focus at this conference.
According to Gingrich, the current U.S. healthcare system is fraudulent, inefficient, and ineffective. He states that in 2006, the U.S government spent $647.2 billion on health versus $521.8 for national security, and that this gap is projected to expand further in the coming years with national security spending flat and healthcare increasing to $737.9 by 2009, a 14 percent increase.
Gingrich cites some examples of inefficiencies in government spending leading to this large increase:
- 98,000 persons die in hospitals due to medical errors according to the Institute of Medicine.
- 90,000 Americans each year acquire potentially deadly infections of which at least 50 percent is the result of treatment in hospitals or other parts of our healthcare system.
- Failure to adopt health information technology is costing $100 billion and tens of thousands of lives each year (according to the Agency for Healthcare Research and Quality).
- Medication errors contribute to more than 7,000 deaths annually (with billions of prescriptions written by physicians every year, more than 150 million prescriptions require a call from a pharmacist to a doctor as either the pharmacist cannot read the writing, or the drug is not compatible with another drug the patient is taking, or the pharmacist wants to substitute a drug so the patient’s insurance will cover it).
Regarding healthcare fraud, Gingrich believes that more than $60 billion a year, or nearly $1 trillion dollars over the next decade, is or will be wasted under current practices. He cites the example of New York State’s Medicaid program, where at least 10 percent of state Medicaid dollars were spent on fraudulent claims, while 20 to 30 percent were siphoned off by what was termed as abuse, meaning unnecessary spending. In the case of New York, he states that as much as 40 percent of all claims were questionable, which approaches some $18 billion per year. Assuming similar types of activities in other states, an amount totaling some $250 billion/year is being wasted in the U.S. today.
Gingrich does propose some specific plans to curb this waste, including the implementation of healthcare electronic information systems that would cut out a lot of this inefficiency or at least make it more visible to administrators.
The high cost of drug therapies
Being a student of the biotech and pharma industries, a concern that I have is that pricing for new drug therapies in the U.S. is getting out of control and further drawing negative attention to an industry that spends a very large amount of funds in research and development with very high development risks. As the cost of drug therapy in the United States is probably higher than almost any other region of the world, except Japan, the U.S. consumer is paying for having access to such therapy and at the same time the lower profitability that exists for drugs due to lower pricing in other parts of the world.
In a recent article in the American Association of Retired Persons (AARP), monthly bulletin for the month of October, 2008, entitled “Million Dollar Medicines,” about 25 percent of all money spent on drugs in the U.S – some $73 billion in 2008 and $99 billion in 2010 – goes to specialty drugs. These specialty drugs have prices 10 to 100 times higher than most prescription drugs because patients have few alternatives and there are usually no competing medications. Some examples cited are drugs for Multiple Sclerosis, a crippling disease, such as Copaxone, Avonex, and Betaserone, which run about $24,000/year, to arthritis drugs Enbrel and Humira, which can cost $15,000 to $45,000/year.
The result of these high-cost medicines is causing insurance plans to charge higher co-payments, and cover less of the overall cost of the medicine. A growing number of insurance companies, according to the article, ask patients to pay for 25 to 30 percent of the drug’s cost. A bipartisan bill now in Congress, called the Access to Life-Saving Medicine Act, would give theFood and Drug Administration the authority to approve safe copies of biologics-based drugs (generic versions of biotech drugs).
Another related issue is the high cost of new therapies for cancer, which are extending life for patients by weeks or months but at a cost as high as $200,000. In Europe, a number of countries have refused to use some of the new specialty medicines, saying the medicines do not offer value for their price.
According to AARP article, from 2003 to 2007 prices for specialty drugs in the U.S. increased by 43 percent compared with the general inflation rate of 14 percent. The article also indicated that once the Medicare drug Part D benefit took effect in 2006, manufacturers’ prices for the 144 most widely used specialty drugs increased almost eight percent in 2006 and almost nine percent in 2007. Prior to this benefit taking effect, the price increase previously rose five percent and almost seven percent in the two-year period before the benefit.
The AARP article sights a growing trend among the medical community to move toward a cost-effective approach that weighs a drug’s cost against a year of quality of life.
In the midst of our current U.S. economic troubles AND a period that will focus on government spending and waste, regardless of whether it is a Republican or Democratic government in place, the pharma and biotech industry should be forewarned that there will be increased scrutiny on the industry if it doesn’t police itself on both new drug pricing and price increases on existing therapies. While generic pressure, patent expirations, and a new FDA policy of generic biotech drugs will help consumers contain pricing impacts on their overall personal budgets, the cost of new specialty therapies has gotten beyond the ability of most individuals, even with medical insurance, to pay for these therapies.
Increases in other healthcare costs, doctors, and hospital fees likewise need some type of cost containment, as they represent the much greater amount of healthcare spending. A Feb. 2008 report in Medical News Today said U.S. healthcare spending is expected to reach a total of $4.1 trillion in 2016, representing 20 percent of every dollar spent. Per capita healthcare spending is expected to reach $12,782 versus $7,498 in 2006, or an increase of 70 percent. Public spending will represent 49 percent of the total in 2016 versus 40 percent in 1990 and 38 percent in 1970.
As I write this article and scan the Wall Street Journal, there is an article about how Swiss drugmaker Hoffman LaRoche cut the price of a new lung cancer drug in the U.K. to match that of an older, already established product on the market there, in order to obtain acceptance and use within the U.K. public healthcare system. The drug was considered too expensive, and while novel and approved in the U.K., had not yet been picked up by the National Institute for Health and Clinical Excellence, the U.K.’s health service. Last year, Johnson & Johnson reached a similar deal with the U.K. service on another new cancer drug. This trend is already catching on in other European countries.
See you soon!
This article previously appeared in MidwestBusiness.com, and was reprinted with its permission. The article is not meant to be a stock recommendation.
The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC. WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.