As Congress prepares to reconvene next week, healthcare reform will be the number one item on the policy agenda. The White House announced this week that President Barack Obama will address a joint session of Congress, next Wednesday, Sept. 9. His speech, perhaps signaling more direct involvement by the President in proposals to revamp the country’s healthcare system, represents a critical juncture in the healthcare debate and yet-to-be determined implications for the pharmaceutical industry.
When Obama delivers his speech, observers from all sides of the policy debate will be listening to hear whether the President will comment on what many consider to be the deal-breaker of healthcare reform: the public option. A public option, which would be a new government insurance program that would compete with private health insurance, has been a central element of the President’s policy. Those that favor a public option say it is a critical and necessary component to create stronger competition and effectuate true reform in the current system. Those that oppose the public option raise concerns over costs and what they perceive as the limited ability of the government to effectively manage such a program. In mid-August, analysts suggested that the President may be willing to compromise on the public option, a move that received both criticism and praise, depending on one’s policy orientation. Obama’s upcoming speech is seen by many as an opportunity for the President to either reassert his support for a public option or to show a willingness to compromise on that issue.
So what does this all mean for the pharmaceutical industry? The industry as a whole has not publicly come out for or against the public option, but instead has restated its commitment to healthcare reform. “We have been working diligently for more than a year to advance bipartisan healthcare reform,” said Pharmaceutical Research and Manufacturers of America (PhRMA) Senior Vice-President Ken Johnson in an Aug. 18, 2009 PhRMA press release. “We’re proud of those efforts, and they are completely consistent with our core principals, reflecting a fundamental belief that every single American should have access to high-quality, affordable healthcare coverage and services.” He also reaffirmed the pharmaceutical industry’s commitment of $80 billion to healthcare reform, a commitment made as part of its policy agreement under which pharmaceutical companies will provide discounts for brand-name prescription drugs to address coverage gaps in Medicare.
But it is that financial commitment that has spawned criticism of the pharmaceutical industry. Some say that limiting the pharmaceutical industry’s share of healthcare reform to a total of $80 billion over 10 years is too much of a concession, as it would circumscribe the opportunity for further savings that could be achieved by the government’s negotiation of drug prices. But in considering this criticism, it is important to consider the costs and benefits that pharmaceuticals play in national healthcare.
Prescription drugs (at a retail level) constituted only 10% of the total cost of national healthcare expenditures of $2.2 trillion in 2007, according to data from the Centers for Medicare and Medicaid Services (CMMS) of the US Department of Health and Human Services. According to CMMS, prescription-drug spending growth declined in 2007, from 8.6% in 2006 to 4.9% in 2007. In contrast, the two largest cost contributors to national healthcare expenditures in 2007 were hospital care (31%) and physician and clinical services (21%), which respectively increased 7.3% and 6.5% in 2007. In a recent blog to the New York Times, PhRMA President and CEO Billy Tauzin pointed out the lion’s share of national healthcare expenditures relate to the treatment of chronic disease, which accounts for 75% of all healthcare spending in the US.
Relative to other healthcare options, prescription drugs, along with wellness programs and preventive care, offer a more cost-effective solution for treating disease. In the debate of healthcare reform, it is important to keep in mind that maintaining sustainable business models to continue the innovation and supply of prescription drugs is not only cost-effective, but good public policy.