Wednesday March 28 5:39 PM ET

Economist Says Drug Spending Not a Crisis

WASHINGTON (Reuters Health) - Those who are warning that
the recent spiraling spending on prescription drugs is
threatening to bring down the nation's health system should
relax, Princeton economist Uwe Reinhardt told a meeting
Wednesday on prescription drug pricing issues.

"In the aggregate, spending on prescription drugs is not a major
macro-economic burden," Reinhardt told a meeting of the
Council on the Economic Impact of Health System Change.

In 1999, he noted, Americans spent less per capita on
prescription drugs ($358) than they did on alcohol, tobacco, and
entertainment admission fees ($413). "You could just as easily
say football was the problem," Reinhardt joked.

Increased spending for prescription drugs are also an overrated
reason for the recent upsurge in health insurance premiums. If
prescription drugs absorb 15% of premiums and premiums are
rising 20% per year, then only 3 percentage points of the
increase is attributable to prescription drugs, he said.

And those who say that drug spending can be held down by
lowering the industry's profit margin are also likely to be
disappointed, he said, because industry profits represent only
about 1.2% of national health expenditures. "It is certainly fun to
bash the profits of the drug companies, but in fact eliminating the
profits are not going to help you a lot in bailing out national
health spending," he said. "The money just isn't there."

What is a major spur towards increased utilization, Reinhardt
said, is the increase in third-party coverage of drug costs and the
three-tier pricing systems that shields consumers from the
actual costs of their medications. "People think all drugs have
three prices," he said, "$8, $15, or $25."

Requiring people to pay a percentage of their drugs costs, rather
than a fixed copayment, he said, would "give people some idea
of the actual cost of drugs." Health plans might also hold down
costs by making consumers pay anything higher than a pre-set
"reference price."