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Medical Mystery: Something Happened to U.S. Health Spending After 1980

by Austin Frakt - NYT - May 14, 2018

The United States devotes a lot more of its economic resources to health care than any other nation, and yet its health care outcomes aren’t better for it.

That hasn’t always been the case. America was in the realm of other countries in per-capita health spending through about 1980. Then it diverged.

It’s the same story with health spending as a fraction of gross domestic product. Likewise, life expectancy. In 1980, the U.S. was right in the middle of the pack of peer nations in life expectancy at birth. But by the mid-2000s, we were at the bottom of the pack.

What happened?

Health spending and life expectancy are not necessarily closely related, so it’s helpful to consider them separately.

“Medical care is one of the less important determinants of life expectancy,” saidJoseph Newhouse, a health economist at Harvard. “Socioeconomic status and other social factors exert larger influences on longevity.”

For spending, many experts point to differences in public policy on health care financing. “Other countries have been able to put limits on health care prices and spending” with government policies, said Paul Starr, professor of sociology and public affairs at Princeton. The United States has relied more on market forces, which have been less effective.

“Confronted with fiscal pressures, as the share of G.D.P. absorbed by health care spending began to get serious, other nations had mechanisms to hold down spending,” said Henry Aaron, a health economist with the Brookings Institution. “We didn’t.”

One result: Prices for health care goods and services are much higher in the United States. Gerard Anderson, a professor at Johns Hopkins and a lead author of a Health Affairs study on the subject, emphasized this point. “The differential between what the U.S. and other industrialized countries pay for prescriptions and for hospital and physician services continues to widen over time,” he said. Other studies also support this idea. However, by some measures, growth in the amount of health care consumed has also been a factor.

The degree of competition, or lack thereof, in the American health system plays a role. A recent study by economists at the University of Miami found that periods of rapid growth in U.S. health care spending coincide with rapid growth in markups of health care prices. This is what one would expect in markets with low levels of competition.

Although American health care markets are highly consolidated, which contributes to higher prices, there are also enough players to impose administrative drag. Rising administrative costs — like billing and price negotiations across many insurers — may also explain part of the problem.

The additional costs associated with many insurers, each requiring different billing documentation, adds inefficiency, according to the Harvard health economist David Cutler. According to a recent study, the United States has higher health care administrative costs than other wealthy countries.

“We have big pharma vs. big insurance vs. big hospital networks, and the patient and employers and also the government end up paying the bills,” said Janet Currie, a Princeton health economist. Though we have some large public health care programs, they are not able to keep a lid on prices. Medicare, for example, is forbidden to negotiate as a whole for drug prices, as Ms. Currie pointed out.

But none of this explains the timing of the spending divergence. Why did it start around 1980?

Mr. Starr suggests that the high inflation of the late 1970s contributed to growth in health care spending, which other countries had more systems in place to control. Likewise, Mr. Cutler points to related economic events before 1980 as contributing factors. The oil price shocks of the 1970s hurt economic growth, straining countries’ ability to afford health care. “Thus, all across the world, one sees constraints on payment, technology, etc., in the 1970s and 1980s,” he said. The United States is not different in kind, only degree; our constraints were weaker.

Later on, once those spending constraints eased, “suppliers of medical inputs marketed very costly technological innovations with gusto,” Mr. Aaron said. They “found ready customers in hospitals, medical practices and other entities eager to keep up with rivals in the medical arms race.”

The last third of the 20th century or so was a fertile time for expensive health care innovation. Sherry Glied, an economist and a dean at New York University, offered a few examples: “Coronary artery bypass grafting took off in the mid-to late 1970s.Later, we saw innovations like drug treatments for H.I.V. and premature babies.”

These are all highly valuable, but they came at very high prices. This willingness to pay more has in turn made the United States an attractive market for innovation in health care.

Yet being an engine for innovation doesn’t necessarily translate into better outcomes. Almost no matter how it’s measured, longevity in the United States has not kept pace with that of other nations. Again, the inflection point is around 1980. Why?

A study examining the period 1975 to 2005 by Ms. Glied and Peter Muennig, from Columbia, suggests that international differences in rates of smoking, obesity, traffic accidents and homicides cannot explain why Americans tend to die younger.

Some have speculated that slower American life expectancy improvements are a result of a more diverse population. But Ms. Glied and Mr. Muennig found that life expectancy growth has been higher in minority groups in the United States. Another study, published in JAMA, found that even accounting for motor vehicle traffic crashes, firearm-related injuries and drug poisonings, the United States has higher mortality rates than comparably wealthy countries.

The lack of universal health coverage and less safety net support for low-income populations could have something to do with it, Ms. Glied speculated. “The most efficient way to improve population health is to focus on those at the bottom,” she said. “But we don’t do as much for them as other countries.”

The effectiveness of focusing on low-income populations is evident from large expansions of public health insurance for pregnant women and children in the 1980s. There were large reductions in child mortality associated with these expansions. “Those reductions were much larger for poor children than for richer children,” Ms. Currie said.

A report by RAND shows that in 1980 the United States spent 11 percent of its G.D.P. on social programs, excluding health care, while members of the European Union spent an average of about 15 percent. In 2011 the gap had widened to 16 percent versus 22 percent.

Although this is a modest divergence over time, Mr. Anderson says it could be significant nonetheless. “Social underfunding probably has more long-term implications than underinvestment in medical care,” he said. For example, “if the underspending is on early childhood education — one of the key socioeconomic determinants of health — then there are long-term implications.”

Slow income growth could also play a role because poorer health is associated with lower incomes. “It’s notable that, apart from the richest of Americans, income growth stagnated starting in the late 1970s,” Mr. Cutler said.

Even if we can’t fully explain why the United States diverged in terms of health care spending and outcomes after 1980, one thing is clear: History demonstrates that it is possible for the U.S. health system to perform on par with other wealthy countries. That doesn’t mean it’s a simple matter to return to international parity. A lot has changed in 40 years. What began as small gaps in performance are now yawning chasms. And, to the extent greater American health spending has spurred development of valuable health care technologies, we may not want to trade away all of our additional spending.

Nevertheless, Ashish Jha, a physician with the Harvard T.H. Chan School of Public Health and the director of the Harvard Global Health Institute, is hopeful: “For starters, we could have a lot more competition in health care. And government programs should often pay less than they do.” He added that if savings could be reaped from these approaches, and others — and reinvested in improving the welfare of lower-income Americans — we might close both the spending and longevity gaps.

Editor's Note:

Austin Frakt’s May 14 Upshot article fails to mention one important point in trying to explain the disconnect between American health care spending and health care outcomes.

Although he mentions several important factors, such as relatively low spending on social services in the US, he fails to mention one very important difference between the US and other wealthy countries.

That is the unique (one might say exceptional) and widespread acceptance in the US of the idea of health care as a business rather than a public good. That, coupled with the political power of large corporate health care providers, has prevented the enactment of public policies that would effectively restrain overall health care costs, and is in turn due largely to the lack of restraint on corporate money in American politics.

Large for-profit corporations, not doctors and nurses, are now running the US healthcare system.

The result: high costs and poor outcomes.

-SPC

Want to lower drug prices? Let Medicare negotiate.By the Editorial Board - Bangor Daily News - May 15, 2018The price of brand name drugs have increased nearly 300 percent since 2010. The price of one drug used to treat multiple sclerosis increased by more than 3,000 percent, a recent study found. Because of the high cost of prescription drugs, many Americans don’t take their medication as prescribed, which can worsen their symptoms and delay recovery.
So, it is no surprise that drug prices are a top concern for many Americans.On the campaign trail, President Donald Trump said lowering drug prices would be a priority if he were elected. In his first news conference as president-elect, he accused drug makers of “getting away with murder.” He said Medicare, the largest single purchaser of medications in the U.S., should be able to negotiate for lower drug prices. This is currently against the law.
On Friday, Trump unveiled his plan to lower drug prices. Allowing Medicare to negotiate lower medication prices was nowhere to be found.
Instead, his plan included numerous small steps that aren’t likely to do much to reduce drug prices. They include possibly requiring drug makers to disclose the cost of the medicines on television commercials, speeding up the approval process for over-the-counter medications and lifting the “gag” rule that prevents doctors from telling patients how they can save money on medications.
Trump’s health and human services secretary, Alex Azar, is a former executive at Eli Lilly and Co., a drug maker.Pharmaceutical company stock prices rose after Trump’s announcement, signaling that investors don’t believe the steps the president outlined would cut into these companies’ high profits.
In Maine, lawmakers recently took an important step toward lowering drug prices. A first step in reducing drug prices is to let consumers know the cost of medications they are prescribed. Next, drug makers should explain how they set prices.

LD 1406, which became law earlier this month, without Gov. Paul LePage’s signature, does both of these things.
It requires that the Maine Health Data Organization, starting Dec. 1, issue a report detailing: the 25 most frequently prescribed drugs in Maine; the 25 costliest drugs as determined by the total amount spent on those drugs in the state; and the 25 drugs with the highest year-over-year cost increases as determined by the total amount spent on those drugs. This is for both generic and brand-name medications.
It also requires the organization to develop a plan to collect data from manufacturers related to the cost and pricing of prescription drugs in order to provide transparency in and accountability for prescription drug pricing. It is also directed to consult with other state and national agencies and organizations to determine how best to do such data collection. Other states for example, are requiring information about marketing and advertising costs and research and development costs.
The bill’s sponsor Eloise Vitelli, D-Arrowsic, shared the story of a young colleague who has had diabetes since she was a toddler. She pays nearly $5,000 a year for insulin, a pump and monitoring and testing supplies. This is with insurance. The cost of insulin has increased by more than 50 percent in four years.
“When individuals begin to make choices between taking a life sustaining drug or buying food and paying rent, we know we have a problem that cannot — should not — be solved by individuals themselves,” Vitelli told the Judiciary Committee last May, when the bill was introduced. The bill was held over from last year to give lawmakers time to work out a compromise.
Despite opposition from the pharmaceutical industry, the bill was unanimously passed by both the House and Senate, showing that lawmakers can address problems when they work together.
In Washington, it now falls to Congress to take up Trump’s broken promise to allow Medicare to negotiate lower drug prices. This will be a difficult sell if Republicans retain control of Congress, but common sense dictates this is one of the most direct ways to lower drug costs for tens of millions of Americans.
https://bangordailynews.com/2018/05/15/opinion/editorials/want-to-lower-drug-prices-let-medicare-negotiate/

As Trump takes aim at drug prices, Maine dad grapples with soaring cost of son’s insulin
by Meg Haskell - Bangor Daily News - May 16, 2018
With an estimated 30 million Americans, including 137,000 Mainers, living with diabetes, the skyrocketing cost of insulin has become a matter of national concern.
Last week, Paul Grant, a 42-year-old construction estimator from New Gloucester, told the U.S. Senate Special Committee on Aging that he faced paying more than $900 out of his own pocket for a 90-day supply of insulin to keep his 13-year-old son alive. His insurance policy, which he purchases off the individual market, carries a high deductible that he has to meet before it will cover the cost.
That’s nearly $1,000 for a treatment Solomon absolutely needs, and about three times more than I had been paying,” Grant told the committee, which is chaired by Maine U.S. Sen. Susan Collins. Panicked, Grant said he ended up purchasing a 30-day supply from a local pharmacy, which, after applying a coupon, cost him $322
He was buying time until he could find a more affordable solution. He consulted his insurance company, asked friends for advice and shopped around online, where insulin and other supplies for people with diabetes can be found on sites like Craigslist and Ebay. Eventually, Grant found a pharmacy in Canada that would sell him a 90-day supply of the type of insulin his son needs for just under $300, including a $50 shipping charge.

“I had no choice,” he said. “Sol had to have insulin.”

Grant’s son was diagnosed with type 1 diabetes 4 years ago, when he was just 9 years old. His normally healthy, active, athletic boy suddenly became listless and lethargic, complaining of stomach pain and flu-like symptoms. His doctor initially thought Sol had influenza.

Soloman Grant, 13, was diagnosed with type 1 diabetes when he was nine years old. The insulin he needs to stay healthy has risen in cost from about $300 for a 90-day supply to over $1,400, posing a financial challenge to his family. Recently, Solomon's father, Paul Grant, has found the insulin he needs at a Canadian pharmacy for less than $300, including shipping.

After a week with no improvement, Grant’s wife took Sol to the hospital emergency department. His blood sugar level was over 800 milligrams of glucose per deciliter of blood — normal is 100 mg/dl or lower.

“You can imagine the feelings his mother and I experienced when we heard the words, ‘Your son has type 1 diabetes,’” Grant told the committee. The diagnosis meant a lifetime commitment to managing a potentially deadly disease. Insulin was key to Sol’s survival.

There are two kinds of chronic diabetes, type 1 and type 2. Type 1 diabetes, formerly known as Juvenile Onset Diabetes, occurs when the pancreas does not produce natural insulin, which is needed to break down glucose — the end product of all nutritional intake — to fuel and nourish the body. The exact cause is not known, but it is an autoimmune disease, triggered when the body’s own immune system targets the pancreas.

Type 2 diabetes is more common in adults than in children and is most often linked to obesity. Type 2 diabetes often can be managed with diet, exercise and medications, but many people with it also require insulin.

In both conditions, sugar builds up dangerously in the bloodstream and can cause a multitude of serious, sometimes life-threatening complications.

Prior to the discovery of insulin in the early 1920s, a diagnosis of diabetes was a near-certain death sentence. The discovery changed the outlook dramatically and was viewed as a major medical breakthrough.

The three Canadian scientists who made the discovery and developed the technique for purifying animal insulin so it could be used by humans sold the patent for $1 each, “to ensure affordable insulin for all who needed it,” according to William T. Cefalu, chief scientific, medical and mission officer for the American Diabetes Association, who also spoke at the committee hearing.

“Further discoveries have resulted in new formulations of insulin over the years, advancing from animal insulin, to human insulin, and more recently in the 1990s to analog [laboratory-grown] insulins,” Cefalu told the committee. “In recent years there have been fewer advancements in insulin formulations, yet prices continue to rise, even for off-patent insulins.”

Virtually all insulin available in this country is manufactured by one of three companies: Denmark-based Novo Nordisk, Eli Lilly in the U.S. and Sanofi in France. No generic versions are available, even though the medicine is nearing the 100th anniversary of its discovery.

Between 2002 and 2013, Cafalu said, the average price of insulin nearly tripled, creating a “tremendous financial burden” for many who live with diabetes. The cause is unclear, he said, largely due to the lack of transparency in the supply chain, including transactions among manufacturers, wholesalers, pharmacy benefit managers — companies that administer prescription benefits for health insurers — insurance companies and pharmacies, he said.

In 2016, the American Diabetes Association called on these entities to disclose information about the cost and pricing of insulin, and also asked Congress to take action to ensure insulin’s future affordability. The organization is also circulating a petition in support of these demands.

At the end of last week, President Donald Trump laid out a plan for reducing the cost of prescription drugs, including manufacturers’ rebates, the promotion of generic drugs and requiring drug companies to include the cost of medication on television ads. The plan stops short of allowing the powerful Medicare program to negotiate lower prices directly with manufacturers.

The plan has been criticized for not taking a more direct approach to controlling drug prices, for being too vague and for lacking a timeline for achieving measurable progress. Maine independent health policy consultant Mitchell Stein calls it “smoke and mirrors with a dash of policy.”

But Collins, a moderate Republican who has worked in several capacities to confront the growing cost of certain prescription medications, including the launch in 2015 of a bipartisan Senate investigation into the issue, said in a statement that the Trump plan represents “an encouraging step forward” in increasing transparency and holding down drug costs.

“While dramatic breakthroughs by the pharmaceutical industry have led to new medical miracles, they often come with hefty price tags, placing a particularly heavy burden on seniors, the uninsured, and those Americans with high deductibles,” she said.

Grant told Collins that the cost of a 90-day supply of insulin from the Canadian pharmacy has not changed since he placed his first order in January. But he recently checked the pharmacy service that his insurance company promotes and found the price had jumped even further, to more than $1,400.

https://bangordailynews.com/2018/05/16/health/as-trump-takes-aim-at-drug-prices-maine-dad-grapples-with-soaring-cost-of-sons-insulin/

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