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Drug Costs Are Spiraling Out Of Control. How Do We Address This?

The healthcare industry, especially providers, has adopted a so-called Triple Aim of better health, better car,e and better value. We are transforming the healthcare delivery system to focus on value versus volume. Patient outcomes and clinical measurements and metrics are an integral part of this overhaul.
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The healthcare industry, especially providers, has adopted a so-called Triple Aim of better health, better car,e and better value. We are transforming the healthcare delivery system to focus on value versus volume. Patient outcomes and clinical measurements and metrics are an integral part of this overhaul.

Concepts such as medical homes, accountable care organizations (ACO), reduced re-admissions, post-acute care coordination and palliative care coupled with bundled payments represent a glimpse of future treatment and reimbursement. All providers, insurance companies, manufacturers, and especially drug companies must work collaboratively together in these new initiatives.

We have significant concerns with the rising costs of drugs and the impact on patient care. According to Forbes magazine, 222 generic drug group prices increased by 100 percent between 2013 and 2014. The Centers for Medicare and Medicaid Services Office of the Actuary projects drug costs will exceed 12.6 percent in 2014, which has far exceeded inflation. A recent Express Scripts analysis reflected a 13.1 percent increase in prescription drugs expenses in 2014. According to a recent BBC report, Turing Pharmaceuticals acquired the rights to Daraprim (used in HIV treatment) and the US cost of a treatment dose increased from $13.50 to $750.00.

Even my rudimentary “economic skills” understand pharmaceutical companies set prices on market tolerance, but a major flaw in that thinking is some therapeutic drugs are inelastic (demand does not shift due to price changes). In theory, one could agree that generic drugs should operate in an open market with competition impacting prices. The flaw in that economic belief is many generics are produced by a relatively small number of manufacturers and therefore have very limited competition.

We must address this rising drug cost issue with collaboration and cooperation because providers’ costs are escalating and consumers are getting squeezed on higher co-payment tiers and denial of certain drugs for treatment. We will have ACOs in our delivery systems and drug companies need to be accountable for outcomes just like providers. Some initial steps would be antitrust regulators should review drug company mergers insuring that such mergers result in operational efficiencies which should reduce drug prices. The Federal Drug Administration (FDA) should consider the cost of a drug (currently do not review this) in the approval process of a new medication. In most industries, research and innovation reduce operating costs, but apparently this is not the case with drug manufacturers.

The bottom line is we need to improve patient outcomes by all working together with appropriate treatment measurements and metrics. Pharmaceutical companies must be on the team and also support the Triple Aim, especially better value. It’s the right thing to do for our patients.

Steve Love is the president and CEO of the Dallas-Fort Worth Hospital Council. 

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