To spend less on health care, invest more in drugs


Jhe conventional wisdom that we need to cut spending on prescription drugs is totally wrong. In an ideal health care system, we would spend Continued on drugs, no less.

Rather than spending trillions of dollars on hospital infrastructure, moderately effective palliative treatments, and cumbersome administrative processes, the United States could spend less on powerful drugs that prevent, control, and even cure disease.

Access to a wider pool of innovative medicines would improve the lives of everyone, but especially the historically marginalized groups who bear the heavy economic and health burden of the disease. If more medical conditions could be managed with medication rather than frequent doctor or hospital visits, we would likely see a reduction in overall health care costs and less variation in health status between social groups and geography.


How can this dream vision of a healthier and more equitable world — and a more efficient health care system — become a reality?

For starters, policymakers must end their perpetual war on biopharmaceuticals. For years, Congress distinguished drug costs even though drugs represent only 12% of total health care spending in the United States and are often the most effective tool in the fight against disease.


Prescription drugs can significantly reduce the need for costly emergency room visits, surgeries, hospitalizations and long-term care. In fact, a Congressional Budget Office estimate found that an increase in the use of prescription drugs reduced spending on medical services.

We can look at the progress made in the treatment of hepatitis C, an often fatal liver disease. Barely a decade ago, 20% of people Hepatitis C would develop cirrhosis, a complex and costly disease that may require a liver transplant. Today, there are once-daily medications that can cure up to 95% of cases with little or no side effects. A course of one of these drugs costs $24,000. It’s certainly not cheap, but it’s twenty-fifth the cost of a liver transplant, which costs an average of $600,000.

Or consider advances in HIV treatment. Once a death sentence, there are now drugs that can prevent almost all new infections. With continued research, long-acting injectables may soon allow for fortnightly treatment. Widespread use of these drugs could eradicate HIV in the United States – a disease that is currently costing the health care system $28 billion a year.

And there is no clearer example of the power of drugs to save lives and costs than vaccines against Covid-19. Each Pfizer injection costs the US government about $24 – it is available at no cost to patients, to maximize utilization – but can prevent hospitalizations that cost tens of thousands of dollars. By preventing hospitalizations and missed workdays, Covid-19 vaccines have boosted US gross domestic product by $438 billion in 2021 alone, according to new research from Heartland Forward, a think tank.

There is no doubt that the cost of drugs in our current system can impose a real – and sometimes overwhelming – financial burden on some patients. But the solution is not to reduce overall spending on these effective tools. The aim is to improve the quality of insurance coverage and to guarantee that all patients have access to medicines prescribed by their doctor.

This probably means capping personal expenses, moving away from coinsurance and develop alternatives to high-deductible health plans. A study in the New England Journal of Medicine, for example, found that reimbursable caps significantly reduced patient spending without increasing health plan spending. Policymakers should also investigate recent reports highlighting the role industry intermediaries play in high drug costs.

Innovative American life science researchers may soon elevate diseases like Alzheimer’s disease, Parkinson’s disease and ALS to measles and poliomyelitis. With sustained investment in biopharmaceutical research and development, more and more of the diseases that result in complex and costly care in our current system will be prevented or managed with new drugs. These advances will have a cost, but they will still be much cheaper, in the long term, than the status quo where a majority of health care costs come from hospitals, doctor visits and long-term care expenses.

Equally important, the cost of these new treatments should come down over time as patent protection ends and generics and biosimilars come to market. This represents a critical investment opportunity for society — not the burden some say drug spending is.

There will never be a world in which prescription drugs represent 100% of health care costs. Accidents and other calamities will continue to require complex and comprehensive care. But when most illnesses can be effectively managed or cured by medication, they should make up a higher percentage of a more efficient and less expensive health care system.

Jean-François Formela is a partner at Atlas Venture in Cambridge, Mass., where he focuses on new approaches to drug and therapeutic discovery. John Stanford is the executive director of Incubate, a Washington-based coalition of life sciences venture capitalists.


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