By Don Long
Medical Device Daily
Drugs - not devices or other new medical technologies - are most likely to drive increases in U.S. health expenditures over the next decade, according to a Healthcare Financing Administration report published in the March/April issue of Health Affairs.
The report offers a rather different interpretation of the root source of health care increases predicted into the next decade, when compared to an analysis issued earlier this month by Project HOPE and widely trumpeted by two insurance groups, the Health Insurance Association of America and the Blue Cross Blue Shield Association.
While the Project HOPE report zeroed in on new medical technologies - in particular, some of the latest imaging systems used in diagnostics - the HCFA report in several ways selects new and higher-priced prescription drugs as the major driver of increased health care up to 2010.
Overall, the report projects an annual average health care growth rate of 7.2 percent from 1998 through 2010, with that rate falling between the 5.2 percent average rate of growth seen from 1993 through 1998 and the high average rate of 10.5 percent seen in the period from 1980 through 1993.
And compared to the 7.2 percent growth rate in medical spending over the next decade, the increase in drug spending will grow an average of 12.6 percent per year throughout the decade. Drug expenditures will increase from 9.4 percent of personal health spending in 1999 to 16 percent in 2010. This increase will be highest in the early half of the decade, at 14.6 percent.
Insurance payers are identified as one of the key drivers behind this double-digit increase in drug price spending and payment increases, according to the report, and they will continue to have this effect. Thus, the report authors write, "Perhaps the most significant [driver] was proliferation of health plans with low co-payments for coverage of drugs. Consequently, drug spending rose, as prescription sizes increased and as the proportion of people using medications grew."
Overall, the effect of low co-payments was extensive, according to the report. "Since 1995 a steady shift toward health insurance plans with small out-of-pocket requirements for drugs has raised consumer demand." Corresponding growth in private health insurance payments reached 43 percent of prescription drug spending in 1999, compared with 27 percent in 1993. Public insurers also increased spending, as growth in Medicaid spending for drugs exceeded program spending growth in most years over the past decade. The report says that some of this increase has been stemmed a bit by shifts to tiered insurance systems that provide incentives for choosing lower-cost drugs and that this trend will continue.
Countering this trend, however, was what the report termed an "explosion" in advertising to consumers that fueled an increase in the demand for prescription drugs. Additionally, "As better therapies were produced, consumers substituted newer, high-priced drugs for less-expensive ones." The report termed this a "substitution effect."
While this effect will be slowed by the increasing number of generic competitors, the report sees this also countered by the rapid introduction of new drugs through company pipelines, a trend it sees in the next decade as more rapid than in the 1980s and early 1990s, but not so fast as the drug introductions of "the 1996-97 peak."
While the report does not specifically address the impact of costs for new devices and other medical technologies, it does look at home health, nursing homes and hospitals that employ those technologies.
"Complex choices" for consumers are the result of these trends, the report concludes in its summary and discussion, noting that the growth in private-sector health insurance premiums "is once again approaching double digits" and a Medicare prescription drug benefit stands "at the forefront of the political agenda."
And, the report says, "The nation has clearly expressed its desire for the best possible health care, including rapid development of new medical technologies, but has not yet determined how best to meet its substantial costs." n