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To Spend Less On Healthcare, Invest In More Medicines

Read John Stanford and JF Formela's op-ed on how we can lower health costs by spending more on drugs.


By JF Formela and John Stanford

The conventional wisdom that we need to reduce spending on prescription drugs is all wrong. In an ideal health care system, we’d spend more on drugs, not less.

Rather than spending trillions of dollars on hospital infrastructure, moderately effective palliative treatments, and burdensome administrative processes, the U.S. could spend a smaller sum on powerful medicines that prevent, control, and even cure disease.

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

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

For starters, policymakers must end their perpetual war on biopharmaceuticals. For years, Congress has been singling out drug costs even though medicines account for only 12% of total U.S. health care spending and are often the most effective tool for fighting disease.

Prescription drugs can significantly reduce the need for expensive 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 decreased spending on medical services.

We can look at the progress that has been made treating hepatitis C, an often-fatal liver disease. Barely a decade ago, 20% of people with hepatitis C would develop cirrhosis, a complex and expensive condition that can necessitate a liver transplant. Today, there are once-daily medications that can cure up to 95% of cases with few to no side effects. A course of one of those medicines costs $24,000. That is certainly not cheap, but it is one-twenty-fifth the cost of a liver transplant, which costs $600,000 on average.

Or consider the advancements made in treating HIV. Once a death sentence, there are now medications that can prevent nearly all new infections. Thanks to continued research, long-acting injectables may soon allow for bimonthly treatment. Widespread use of these drugs could eradicate HIV in the United States — a disease that currently costs the health care system $28 billion a year.

And there’s no clearer example of the life- and cost-saving power of medicines than the Covid-19 vaccines. Each Pfizer shot costs the U.S. government about $24 — it’s available at no out-of-pocket cost to patients, in order to maximize uptake — but can prevent hospitalizations that cost tens of thousands of dollars. By preventing hospitalizations and missed working days, the Covid-19 vaccines boosted America’s gross domestic product by $438 billion in 2021 alone, according to a new study from Heartland Forward, a think tank.

There’s no question that the cost of medicines in our current system can impose a real — and sometimes overwhelming — financial burden on some patients. But the solution isn’t to reduce overall spending on these effective tools. It is to improve the quality of insurance coverage and ensure that all patients have access to the medicines prescribed by their doctors.

This likely means capping out-of-pocket costs, moving away from co-insurance, and developing alternatives to high-deductible health plans. A study in the New England Journal of Medicine, for instance, found that out-of-pocket caps substantially reduced spending for patients without increasing health plan spending. Policymakers should also investigate recent reports highlighting the role industry middlemen play in the high costs of medication.

America’s innovative life sciences researchers could soon send diseases like Alzheimer’s, Parkinson’s, and ALS the way of measles and polio. With sustained investment in biopharma research and development, more and more diseases that lead to complex and costly care in our current system will be prevented or managed with novel medicines. Those advances will come at a cost, but they’ll still be much less expensive, in the long run, than the status quo where a majority of health care costs stem from hospitals, doctor’s visits, and long-term care spending.

Just as importantly, the cost of these novel treatments should go down over time as patent protection ends and generics and biosimilars enter the marketplace. 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 diseases can be effectively managed or cured by drugs, they should represent a larger percentage of a more effective and less costly heath care system.

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

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