Healthcare Revisited The Cost of Prescription Drugs

Healthcare Revisited    The Cost of Prescription Drugs

2017 Prescription Drug Cost Savings

The average percentage saved outside the U.S. for select prescriptions.

France 67%                        Italy   53%

Spain   55%                        Japan      65%

Germany      51%

One significant factor in the cost disparity is that the R & D costs by US pharmaceutical companies are borne via domestic pricing. Export sales are considered “incremental” and pricing is much, much lower.

“Hopkins University, tells NPR that raising the cost of existing drugs benefits drugmakers and insurers.

Research and development is only about 17 percent of total spending in most large drug companies,” he says. “Once a drug has been approved by the FDA, there are minimal additional research and development costs so drug companies cannot justify price increases by claiming research and development costs.

The study did not examine why prices of existing drugs have gone up, but the researchers say a lack of competition and the regulatory environment in the U.S. allow “for price increases much higher than in other countries.”

From 2008 through 2014, average prices for the most widely used brand-name drugs jumped 128%, according to prescription-benefit manager Express Scripts Holding Co. Reasons include increasing research costs, insufficient competition, and drug shortages.

However, none of these issues completely explain the price disparity. We do need some form of price controls, especially on “mature drugs” and also some assurance that R&D costs are factored into worldwide pricing. Also, we need to investigate the pricing in the baseline countries for the most consumed drugs. If there is a significant price difference, then the companies should be called before Congress to justify. Based on the data from the baseline countries, these costs should be reduced by 50% at a minimum.

COVID 19 Lessons

COVID 19 Lessons

At our coffee group this week the idea that we may have overreacted to the pandemic at the expense of the economy. There is no question that our response has had a tremendous negative impact on the economy. It will take several years (in my opinion) to recover fully. Our only option to pay for the stimulus packages will be to borrow trillions of dollars with no plan to pay it back.

While there are numerous opinions on what we should have done, many of which are politically motivated, I prefer to look at the facts. Following are some of what we know for certain:

  1. As of May 19 the USA had 4.5% of the world’s population and just under 29% of the COVID 19 related deaths.
  2. As of May 19 the US COVID 19 mortality rate based on “reported” cases was 6%. Keep in mind that this is a fictitious rate since our test rate is so low, and we are not identifying all of the cases. If all of the cases were known, the rate would likely fall to the 1-2 % range.
  3. The mortality rate for the Flu is less than .1% (that’s one-tenth of a percent).
  4. As of May 19 our test rate was 3.8%. 3.8% of our population has been tested for COVID 19. The amount of testing increased significantly in the past week. As the number of tests increases, the reported mortality rate will decline (as mentioned in item #2)
  5. The CDC made its prevention recommendations known to our leadership in January.
  6. China publicly shared the genetic sequence of COVID-19 in early January. The actions they were taking were well known.
  7.  The USA did not start taking action to prevent the spread of COVID 19 until late March. At that time, the virus was already significantly established in our country. At that time, most of the country implemented some or all of the actions recommended by the CDC.

There is another school of thought that the best approach would be to just treat COBVID 19 like another form of the Flu and rely on “herd immunity” to solve the problem. The vast majority of health professionals do not support this theory, but some do. The distinct advantage of this approach is that it will minimize the impact on the economy. Most healthcare professionals recommend taking immediate action before the virus gains a foothold and minimize both the mortality rate and impact on the economy.

Sweden, an unlikely candidate, chose the herd immunity approach. In Sweden (not considered a conservative society), there have been no invasive lockdowns to mitigate the spread of the coronavirus. Restaurants and even nightclubs are operating, though under guidelines to enforce social distancing. Schools for students under the age of 16 remain open. Large gatherings are restricted to a maximum of 50 people, a far cry from the enforced confinement imposed on entire cities in other parts of Europe.

These seemingly lax measures attracted the attention of lockdown skeptics elsewhere, who hailed the “Swedish model” as an example of how a Western democracy ought to deal with the pandemic. It became a cause celebre among American conservatives, who resent the economic toll exacted by social distancing restrictions. Even for non-conservatives, the Swedish approach is now being invoked as a distinct “alternative” to what prevails. New York Times columnist Thomas Friedman suggested that President Trump may hope to “follow Sweden” as he seeks to “reopen” the American economy.

Herd immunity relies on the idea that as more folks catch the virus, we build up antibodies that help fight against it. And it has been pushed for, by some, in the United States. But, according to the report, “scientists have called it dangerous rhetoric,” because it could take years to achieve and, in the process, “hundreds of thousands of people could die from COVID-19.”

According to most healthcare experts, no country in the world has reached herd immunity, and that they predict that as much as 50-to-70 percent of the population would have to get the virus to achieve such a goal. According to Business Insider, that could take four-to-five years in the United States.

We need to study Sweden’s performance. I  suspect that by August, we will be able to determine their results. As of May 19, their mortality rate is about 50% greater than ours. Since our number of CODID 19 related deaths stands at 92,000, this translates into 137,000 using the Swedish Model. Their mortality rate stands at 12% of reported cases.

A country that took early action (In  February) and essentially adopted the recommendations of the CDC was New Zealand. New Zealand, the first major country to see the sunrise every day, may also be the first to get a good look at life after COVID-19.

In early May, its 4.8 million citizens woke up to a reality, both different and familiar, as relaxed rules come into effect. They can flock to the beaches and parks. They can meet in cafés and restaurants. They may even hug, because the country’s top health official, a serious-minded man called Ashley Bloomfield, said that a careful hug given to family members or close friends would be OK.

And why not? While most of the world remains in the grips of a deadly pandemic, New Zealanders can take comfort from the fact that they are close to eliminating the virus. Fewer than 100 people have it, and in the past couple of weeks, there were no new cases at all. There have been no COVID 19 related deaths in over two weeks.  Seven weeks after Prime Minister Jacinda Ardern imposed harsh restrictions to contain the coronavirus, the nation will go back to something resembling a normal life. But what exactly is normal in a post-pandemic society?

Knowing there was little dissent, Ardern’s government ignored concerns that elements of the lockdown might have been illegal. The rest of the world would be well-advised to watch. With its borders closed, New Zealand operates under laboratory conditions. Some lessons learned will be universal. Others, I suspect, will be specific to New Zealand, an island nation, remote and sparsely populated, that defies comparison.

Ardern announced sweeping emergency measures. She had seen how European leaders had responded to the virus, acting only once the need to take action became blatantly obvious. Going into a nationwide lockdown at such an early stage seemed bold. And the restrictions were tough: no meetings with friends, no traveling by car unless it was to go shopping for food or medicine.

“We only have 102 cases,” Ardern said in the way of explanation. “But so did Italy once.”

When Ardern made her announcement — starting the clock on four long weeks of confinement, that would later be extended by another three — she said government modeling showed tens of thousands of deaths. This was a worst-case scenario, perhaps even a scare tactic.

If so, it did the trick. New Zealanders didn’t complain; they didn’t protest; they simply followed the rules. When the health minister, of all people, took his family for a 20-minute-ride to the beach, he was demoted. “I expect better,” Ardern said. “And so does New Zealand.”

The results of the New Zealand approach are already known. They have experienced only 21 COVID 19 related deaths. For the USA, this translates into less than 1,500 deaths based on our population. 91,000 less than what we have experienced so far.

There is one other country worthy of study, and that is Iceland. While they have also done a credible job combating the virus but, the primary reason to look at their experience is that they have done a great job with testing. As of May 19, they had tested 16.8% of their residents. The USA has tested 3.8%. Their statistics will give us a better picture of the ratios of the infected and their mortality.

Healthcare Revisited Systems compared

Healthcare Revisited    Systems compared 

Our Healthcare System is the most expensive in the world and at the same time ranks only 37th Solving this issue will not only improve the affordability and quality of healthcare it will vastly improve the financial condition of our country. The solution is extremely simple to implement, but next to impossible to enact politically. Why not you ask? The reason is that there are too many powerful “special interests” that are making hundreds of billions each off the current system.

The simple solution is to evaluate other countries’ systems that are providing superior quality of care at a much lower per capita cost. This process is called “baselining” The following chart show 5 of the top 10 countries in quality of care and their per capita cost.

Best Quality of Care Ranking                           2012 Per Capita Cost

1 France                                                                                       $3,974
2 Italy                                                                                          2,962
7 Spain                                                                                            3,076
9 Austria                                                                                     4,395 
10 Japan                                                                                     3,035                                                         37 USA                                                                                      11,000 (3.1x top 10 average)

Average per capita cost of top 10 in quality                    $3,481

The procedure would be to have unbiased experts examine the systems of the five countries that rank in the top 10 on quality of care. And take the best of each that makes good sense and redesign our system from the ground up. It will be critical to use a team of “experts” that are independent of the following industries: The AMA, drug companies, health insurance companies, the legal profession, and hospitals. We need an unbiased view of all of these components of a healthcare system. I am not qualified to evaluate the systems of the “base-line” countries, but the following are top line summaries for each:

France: (Source:

The French health care system is generally recognized as offering one of the best, services of public health care in the world. Above all, it is a system that works, provides universal cover, and is a system that is strongly defended by virtually everyone in France.
     The health care system in France is made up of a fully-integrated network of public hospitals, private hospitals, doctors and other medical service providers. It is a universal service providing health care for every citizen, irrespective of wealth, age or social status.”

Italy: (Source:

“Italy has a national health plan (Servizio Sanitario Nazionale), which provides universal coverage for hospital and medical benefits, however about 30% of the population has contracted additional private health insurance. The Italian public healthcare system is decentralized and is based on three levels: the State, region and local health boards. The State is responsible for issuing general system guidelines, establishing work contracts, handling international relations and financing research hospitals. The 20 regions of Italy control the functioning of the health services within their areas of jurisdiction and finance independent hospitals. Finally, the local healthcare units provide daily management of services and finance public and private hospitals under contract with the regions. The remaining private hospitals are financed by their patients.”

Spain: (Source:

“The Spanish National Healthcare System (“Instituto Nacional de la Salud”), founded in Spain’s General Healthcare Act of 1986, guarantees universal coverage and free healthcare access to all Spanish nationals, regardless of economic situation or participation in the social security network.

In 1998 the Sistema Sanitario Público (public health service) brought in an official mandate for both doctors and patients outlining the service to which they are entitled, explained in the Carta de Derechos y Deberes (Charter of Rights and Obligations).

Management: The national system has been decentralized since 2002, which has given the regional healthcare authorities the autonomy to plan, change and upgrade the infrastructure, leading to enormous development in the healthcare technology scenario, especially in the usage of information technology. The reforms, which regionalized the system, were implemented in order to provide greater and equal access to the population, thus avoiding the concentration of health services in urban areas. This has also improved response time and increased the participation of the target community in the development and management of the national healthcare system at regional and local levels.”

Austria: (Source:

“The nation of Austria has a two-tier health care system in which virtually all individuals receive publicly funded care, but they also have the option to purchase supplementary private health insurance. Care involving private insurance plans (sometimes referred to as “comfort class” care) can include more flexible visiting hours and private rooms and doctors. Some individuals choose to completely pay for their care privately.                                                                                               Healthcare in Austria is universal for residents of Austria as well as those from other EU countries. Students from an EU/EEA country or Switzerland with national health insurance in their home country can use the European Health Insurance Card. Self-insured students have to pay an insurance fee of EUR 52.68 per month.

Enrollment in the public health care system is generally automatic and is linked to employment, however, insurance is also guaranteed to co-insured persons (i.e. spouses and dependents), pensioners, students, the disabled, and those receiving unemployment benefits. Enrollment is compulsory, and it is not possible to cross-shop the various social security institutions. Employers register their employees with the correct institution and deduct the health insurance tax from employees’ salaries.  Some people, such as the self-employed, are not automatically enrolled but are eligible to enroll in the public health insurance scheme. The cost of public insurance is based on income and is not related to individual medical history or risk factors.

All insured persons have issued an e-Card, which must be presented when visiting a doctor (however, some doctors only treat privately insured patients). The e-Card allows for the digitization of health claims and replaces the earlier health insurance voucher. Additionally, the e-Card serves as a valid ID.

Hospitals and clinics can be either state-run or privately run. Austria has a relatively high density of hospitals and physicians; In 2011 there were 4.7 Physicians per 1000 people, which is slightly greater than the average for Europe. In-patient care is emphasized within the Austrian healthcare system; Austria has the most acute care discharges per 100 inhabitants in Europe and the average hospital stay is 6.6 days compared with an EU average of 6.

Japan: (Source:

“The health care system in Japan provides healthcare services, including screening examinations, prenatal care, and infectious disease control, with the patient accepting responsibility for 30% of these costs while the government pays the remaining 70%. Payment for personal medical services is offered by a universal health care insurance system that provides relative equality of access, with fees set by a government committee. All residents of Japan are required by the law to have health insurance coverage. People without insurance from employers can participate in a national health insurance program, administered by local governments. Patients are free to select physicians or facilities of their choice and cannot be denied coverage. Hospitals, by law, must be run as non-profit and be managed by physicians. For-profit corporations are not allowed to own or operate hospitals. Clinics must be owned and operated by physicians.

Medical fees are strictly regulated by the government to keep them affordable. Depending on the family’s income and the age of the insured, patients are responsible for paying 10%, 20%, or 30% of medical fees, with the government paying the remaining fee.[1] Also, monthly thresholds are set for each household, again depending on income and age, and medical fees exceeding the threshold are waived or reimbursed by the government.

Uninsured patients are responsible for paying 100% of their medical fees, but fees are waived for low-income households receiving a government subsidy. Fees are also waived for homeless people brought to the hospital by ambulance.”

Changing the System will go a long way towards improving the quality of care, but it will only have a limited impact on costs. We need to examine each element of the costs involved. We need to determine why they are so much higher in our country when compared to five base line countries (in the following chart I have substituted Germany for Austria since I could not find the exact comparison for Austria, but they should be about the same).