Increasing Pharmaceutical Spending can Decrease Health Care Costs
It’s a common cry – the increasing cost of prescription drugs is bankrupting the health care system. But is that actually the case? Advancements in technology have dramatically changed the face of medical care, and pharmaceuticals have been in the forefront.
In this research paper, authors Julia Witt and Brian Ferguson examine the question and conclude that better access to pharmaceuticals actually saves money on hospital and emergency department budgets.
“The literature suggests that the better the coverage for pharmaceuticals, the more likely that drugs will be used properly, which then realizes savings in other health care sectors,” says Brian Ferguson, AIMS Fellow in Health Care Economics and an associate professor of Economics at the University of Guelph.
Witt says that to truly realize those savings, there has to be a change in the so-called silo budgeting, so that costs in one sector may be offset against savings in another.
“The benefits of better drug coverage are many-fold, among them the opportunity for more-than-offsetting decreases in hospital and emergency department costs through improvement in health and better disease management, improved compliance because people are better able to afford their medications and new and better drugs to replace old ones,” says Witt, who has a doctorate in economics from the University of Guelph.
In “The Good News: Pharmaceuticals and the Cost of Health Care,” the authors point to evidence of the way in which better drug care is lowering the cost of health care. The Journal of Clinical Psychiatry tracked the cost of antidepressant medication and showed that in one year, the cost per patient of these drugs rose from $385 to $1,319, but hospital costs per in-patient stay fell from $2,738 to $1,217. Therefore, the actual direct treatment cost per patient fell from $4,072 to $3,309.
“This paper addresses the way in which increasing the coverage of drugs by the public health care system can actually save the system money by treating diseases early, and thus preventing the serious, and expensive, consequences of advanced disease,” says Witt.
Ferguson explains that we need a more holistic approach to health care, one that combines budgets to optimize health rather than cost containment within the budgets of individual areas of the health care system.
“If drug and hospital budgets remain strictly separated, new drugs that increase pharmaceutical costs but reduce hospital costs simply impose costs on the drug budget, while yielding benefits for the hospital budget,” says Ferguson. “Unless some of the savings on the hospital side can be transferred over to the drug budget, a strict limit on drug spending could thwart efforts to cut costs overall.”
The Atlantic Institute for Market Studies (AIMS) and the Canadian Health Care Consensus Group (CHCCG) published the paper. AIMS is an independent, non-partisan social and economic policy think tank based in Halifax, Nova Scotia. Members of the CHCCG have come together to provide a platform for bold, reasoned, and practical plans for genuine reform of the health system, and to demonstrate there is an emerging consensus among reform-minded observers about the direction that real reform must take. AIMS coordinates the group, which includes medical practitioners, former health ministers, past presidents of national and provincial hospital, medical, and health associations, academics, and health care policy experts.