November 25, 2009

How can the U.S. spend so much on health care and get so little? Read on…

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If you’ve wondered how it is that a nation like the United States could spend so much on health care and yet have life expectancy rates below many other nations, read on.

rita_hibbardwebWhere do we spend our money? Why are we not surprised to learn that profits continue to multiply for health care companies at rates well above other industries? And why are we not surprised to learn that level of moneymaking seems unlikely to change anytime soon, even with health care reform taken into consideration?

Data compiled by MarketWatch shows that the 52 companies in the index will close out the decade with average profits that nearly tripled.

By the time they close the books on this calendar year, the biggest U.S. health-care companies are expected to net $94 billion on the more than $1 trillion in revenue that they rake in. Some of that change reflects industry consolidation, but much of it came through internal growth.

From drugmakers to biotech firms to insurers, all of the subsectors within the industry showed healthy gains in one realm or another. And every one of them is expected to turn a profit in what has been a difficult year for most other companies.

Yet experts interviewed by Russ Britt of  Marketwatch agree that insurers have been set up as the “fallguy” for even bigger profiteers, with net margins for biotechnology and pharmaceutical firms five to seven times greater.

Health insurers — now popular targets on Capitol Hill in the health-reform debate — more than tripled their income. Six of the insurers on the list are expected together to make more than $10 billion when this year’s results are final. And yet, their performance pales in comparison with a number of other subsectors when measured on the basis of their profit margins. Net margins for biotechnology and pharmaceutical firms are five to seven times greater.

Well-known health care economist Uwe Reinhardt of Princeton University, says much of what is wrong with health care is because of wasteful spending by insurers, but he likens the various sectors  – drug companies, biotech, hospital companies — to tribes that must be placated.

“It’s a fractured system with powerful tribes, each looking out for its own benefit,” Reinhardt said. “If you do health reforms, you have to buy off all the tribal chiefs.”

Here’s something else that  might not surprise you. All that television and print advertising by drug companies? It’s not surprising that it adds a lot to the cost of the drug. But a study by two Canadian researchers shows that at least in the case of one blockbuster drug, it also didn’t increase sales. It just cost taxpayers money, reports Melissa Healy of the Los Angeles Times.

That, effectively, is what a pair of Canadians who teamed with researchers from Harvard University and Kaiser Permanente found when they looked at the cost and use of the cholesterol drug Plavix from 1999 to 2005. Plavix was on the market for two years, and its use was growing steadily when Bristol-Myers Squibb launched a major ad campaign for the drug in 2001. Over the next five years, the drug company spent $350 million to promote Plavix in ads aimed at consumers.

But the research showed that the advertising campaign did not accelerate the sales of Plavix. While sales continued to grow, they grew no faster after advertising began than they had before the ad campaign.

The bottom line:

In the Medicaid program alone, just 27 states spent a collective $207 million more on Plavix prescriptions after the big ad campaign began than would have been expected. If one were to figure in the added cost to Medicare and Medicaid programs of the remaining 23 states, the added cost would look like real money.

Back to where I began. This is instructive because it shows where our health care money flows in this country. It doesn’t always get well spent, directly, in ways that benefit patients and direct care providers. And may explain why people in Japan, Singapore, Australia, Canada, France, Germany, Bosnia, South Korea, Britain and, well, there are actually 40 more countries that rank above the U.S. on this government-produced list, all live longer than people in the U.S. Many of these countries have health care systems like Britain, that have been used to scare Americans during the health care reform debate. Visions of denying pacemakers and long waits for hospital care were bandied about so much that Britains rallied round in defense of their own system.

Maybe it’s time to view American people as the primary “tribe” —  not the drug companies or the hospital conglomerates or the insurance companies.

— Rita Hibbard

One thought on “How can the U.S. spend so much on health care and get so little? Read on…

  1. Thank you for this excellent, objective, truthful piece of journalism. As a physician on the frontline, I know from first-hand experience that analysis and facts are correct. Ignorance is NOT bliss! I truly wish the American people would wake up.