Friday, October 29, 2004
What's really behind the rise in prescription drug spending?
[Malcolm Gladwell, "High Prices," The New Yorker, 18 October 2004.]
This article provides an excellent overview of the prescription drug price controversy. Gladwell explains that despite the claims of politicians and other advocates, what's going on has less to do with the market abusing consumers than consumers responding to poorly designed incentives:
It is not accurate to say, then, that the United States has higher prescription-drug prices than other countries. It is accurate to say only that the United States has a different pricing system from that of other countries. Americans pay more for drugs when they first come out and less as the drugs get older, while the rest of the world pays less in the beginning and more later.
The second misconception about prices has to do with their importance in driving up over-all drug costs. In one three-year period in the mid-nineteen-nineties, for example, the amount of money spent in the United States on asthma medication increased by almost a hundred per cent. But none of that was due to an increase in the price of asthma drugs. It was largely the result of an increase in the prevalence of usage—that is, in the number of people who were given a diagnosis of the disease and who then bought drugs to treat it.
All told, prescription-drug spending in the United States rose 9.1 per cent last year. Only three of those percentage points were due to price increases, however, which means that inflation was about the same in the drug sector as it was in the over-all economy.
Last year, hospital expenditures rose by the same amount as drug expenditures—nine per cent. Yet almost all of that (eight percentage points) was due to inflation. That’s something to be upset about: when it comes to hospital services, we’re spending more and getting less. When it comes to drugs, though, we’re spending more and we’re getting more, and that makes the question of how we ought to respond to rising drug costs a little more ambiguous.
The core problem in bringing drug spending under control, in other words, is persuading the users and buyers and prescribers of drugs to behave rationally, and the reason we’re in the mess we’re in is that, so far, we simply haven’t done a very good job of that.
It's a good thing consumer-driven health care is taking off. As consumers become more cost-conscious and more educated about their options, this core problem will be addressed. That's certainly a better option than continuing to incentivize consumption on the one hand and then attacking the companies that respond accordingly.
[Malcolm Gladwell, "High Prices," The New Yorker, 18 October 2004.]
This article provides an excellent overview of the prescription drug price controversy. Gladwell explains that despite the claims of politicians and other advocates, what's going on has less to do with the market abusing consumers than consumers responding to poorly designed incentives:
It is not accurate to say, then, that the United States has higher prescription-drug prices than other countries. It is accurate to say only that the United States has a different pricing system from that of other countries. Americans pay more for drugs when they first come out and less as the drugs get older, while the rest of the world pays less in the beginning and more later.
The second misconception about prices has to do with their importance in driving up over-all drug costs. In one three-year period in the mid-nineteen-nineties, for example, the amount of money spent in the United States on asthma medication increased by almost a hundred per cent. But none of that was due to an increase in the price of asthma drugs. It was largely the result of an increase in the prevalence of usage—that is, in the number of people who were given a diagnosis of the disease and who then bought drugs to treat it.
All told, prescription-drug spending in the United States rose 9.1 per cent last year. Only three of those percentage points were due to price increases, however, which means that inflation was about the same in the drug sector as it was in the over-all economy.
Last year, hospital expenditures rose by the same amount as drug expenditures—nine per cent. Yet almost all of that (eight percentage points) was due to inflation. That’s something to be upset about: when it comes to hospital services, we’re spending more and getting less. When it comes to drugs, though, we’re spending more and we’re getting more, and that makes the question of how we ought to respond to rising drug costs a little more ambiguous.
The core problem in bringing drug spending under control, in other words, is persuading the users and buyers and prescribers of drugs to behave rationally, and the reason we’re in the mess we’re in is that, so far, we simply haven’t done a very good job of that.
It's a good thing consumer-driven health care is taking off. As consumers become more cost-conscious and more educated about their options, this core problem will be addressed. That's certainly a better option than continuing to incentivize consumption on the one hand and then attacking the companies that respond accordingly.
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