high cost of healthcare research paper

Why the US spends more treating high-need high-cost patients: a comparative study of pricing and utilization of care in six high-income countries

Affiliations.

• 1 Organisation for Economic Co-operation and Development (OECD), Paris, France.
• 2 Department of Health Policy, London School of Economics, London, UK.
• 3 Institute for Research and Documentation in Health Economics (IRDES), Paris, France.
• 4 KPM Center for Public Management, University of Bern, Bern, Switzerland; Hamburg Center for Health Economics, Universität Hamburg, Hamburg, Germany; Swiss Institute for Translational and Entrepreneurial Medicine (sitem-insel), Bern, Switzerland.
• 5 KPM Center for Public Management, University of Bern, Bern, Switzerland; Swiss Institute for Translational and Entrepreneurial Medicine (sitem-insel), Bern, Switzerland.
• 6 Institute of Health Policy Management & Evaluation, University of Toronto, Toronto, Canada.
• 7 The Swedish Agency for Health and Care Services Analysis, Stockholm, Sweden.
• 8 Department of Health Policy and Management, Harvard T.H. Chan School of Public Health, Boston, MA, USA.
• 9 Dunedin School of Medicine, University of Otago, Dunedin, Otago, New Zealand.
• 10 Institute for Health Sciences in Aragon (IACS), Zaragoza, Aragon, Spain.
• 11 Department of Health Policy, London School of Economics, London, UK; Department of Health Policy and Management, Harvard T.H. Chan School of Public Health, Boston, MA, USA; Department of Health Services, Policy and Practice, Brown School of Public Health, Providence, RI, USA. Electronic address: [email protected].
• PMID: 36529552
• DOI: 10.1016/j.healthpol.2022.12.004

One of the most pressing challenges facing most health care systems is rising costs. As the population ages and the demand for health care services grows, there is a growing need to understand the drivers of these costs across systems. This paper attempts to address this gap by examining utilization and spending of the course of a year for two specific high-need high-cost patient types: a frail older person with a hip fracture and an older person with congestive heart failure and diabetes. Data on utilization and expenditure is collected across five health care settings (hospital, post-acute rehabilitation, primary care, outpatient specialty and drugs), in six countries (Canada (Ontario), France, Germany, Spain (Aragon), Sweden and the United States (fee for service Medicare) and used to construct treatment episode Purchasing Power Parities (PPPs) that compare prices using baskets of goods from the different care settings. The treatment episode PPPs suggest other countries have more similar volumes of care to the US as compared to other standardization approaches, suggesting that US prices account for more of the differential in US health care expenditures. The US also differs with regards to the share of expenditures across care settings, with post-acute rehab and outpatient speciality expenditures accounting for a larger share of the total relative to comparators.

Keywords: Health care prices; Health expenditures; Hip fracture; International comparisons; Multi morbidity.

Copyright © 2022 The Author(s). Published by Elsevier B.V. All rights reserved.

Publication types

• Delivery of Health Care
• Developed Countries
• Health Expenditures*
• National Health Programs*
• United States

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• Published: 23 June 2020

The high cost of prescription drugs: causes and solutions

• S. Vincent Rajkumar   ORCID: orcid.org/0000-0002-5862-1833 1  

Blood Cancer Journal volume  10 , Article number:  71 ( 2020 ) Cite this article

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• Cancer therapy
• Public health

Global spending on prescription drugs in 2020 is expected to be ~$1.3 trillion; the United States alone will spend ~$350 billion 1 . These high spending rates are expected to increase at a rate of 3–6% annually worldwide. The magnitude of increase is even more alarming for cancer treatments that account for a large proportion of prescription drug costs. In 2018, global spending on cancer treatments was approximately 150 billion, and has increased by >10% in each of the past 5 years 2 .

The high cost of prescription drugs threatens healthcare budgets, and limits funding available for other areas in which public investment is needed. In countries without universal healthcare, the high cost of prescription drugs poses an additional threat: unaffordable out-of-pocket costs for individual patients. Approximately 25% of Americans find it difficult to afford prescription drugs due to high out-of-pocket costs 3 . Drug companies cite high drug prices as being important for sustaining innovation. But the ability to charge high prices for every new drug possibly slows the pace of innovation. It is less risky to develop drugs that represent minor modifications of existing drugs (“me-too” drugs) and show incremental improvement in efficacy or safety, rather than investing in truly innovative drugs where there is a greater chance of failure.

Causes for the high cost of prescription drugs

The most important reason for the high cost of prescription drugs is the existence of monopoly 4 , 5 . For many new drugs, there are no other alternatives. In the case of cancer, even when there are multiple drugs to treat a specific malignancy, there is still no real competition based on price because most cancers are incurable, and each drug must be used in sequence for a given patient. Patients will need each effective drug at some point during the course of their disease. There is seldom a question of whether a new drug will be needed, but only when it will be needed. Even some old drugs can remain as virtual monopolies. For example, in the United States, three companies, NovoNordisk, Sanofi-Aventis, and Eli Lilly control most of the market for insulin, contributing to high prices and lack of competition 6 .

Ideally, monopolies will be temporary because eventually generic competition should emerge as patents expire. Unfortunately, in cancers and chronic life-threatening diseases, this often does not happen. By the time a drug runs out of patent life, it is already considered obsolete (planned obsolescence) and is no longer the standard of care 4 . A “new and improved version” with a fresh patent life and monopoly protection has already taken the stage. In the case of biologic drugs, cumbersome manufacturing and biosimilar approval processes are additional barriers that greatly limit the number of competitors that can enter the market.

Clearly, all monopolies need to be regulated in order to protect citizens, and therefore most of the developed world uses some form of regulations to cap the launch prices of new prescription drugs. Unregulated monopolies pose major problems. Unregulated monopoly over an essential product can lead to unaffordable prices that threaten the life of citizens. This is the case in the United States, where there are no regulations to control prescription drug prices and no enforceable mechanisms for value-based pricing.

Seriousness of the disease

High prescription drug prices are sustained by the fact that treatments for serious disease are not luxury items, but are needed by vulnerable patients who seek to improve the quality of life or to prolong life. A high price is not a barrier. For serious diseases, patients and their families are willing to pay any price in order to save or prolong life.

High cost of development

Drug development is a long and expensive endeavor: it takes about 12 years for a drug to move from preclinical testing to final approval. It is estimated that it costs approximately $3 billion to develop a new drug, taking into account the high failure rate, wherein only 10–20% of drugs tested are successful and reach the market 7 . Although the high cost of drug development is a major issue that needs to be addressed, some experts consider these estimates to be vastly inflated 8 , 9 . Further, the costs of development are inversely proportional to the incremental benefit provided by the new drug, since it takes trials with a larger sample size, and a greater number of trials to secure regulatory approval. More importantly, we cannot ignore the fact that a considerable amount of public funding goes into the science behind most new drugs, and the public therefore does have a legitimate right in making sure that life-saving drugs are priced fairly.

Lobbying power of pharmaceutical companies

Individual pharmaceutical companies and their trade organization spent approximately $220 million in lobbying in the United States in 2018 10 . Although nations recognize the major problems posed by high prescription drug prices, little has been accomplished in terms of regulatory or legislative reform because of the lobbying power of the pharmaceutical and healthcare industry.

Solutions: global policy changes

There are no easy solutions to the problem of high drug prices. The underlying reasons are complex; some are unique to the United States compared with the rest of the world (Table 1 ).

Patent reform

One of the main ways to limit the problem posed by monopoly is to limit the duration of patent protection. Current patent protections are too long, and companies apply for multiple new patents on the same drug in order to prolong monopoly. We need to reform the patent system to prevent overpatenting and patent abuse 11 . Stiff penalties are needed to prevent “pay-for-delay” schemes where generic competitors are paid money to delay market entry 12 . Patent life should be fixed, and not exceed 7–10 years from the date of first entry into the market (one-and-done approach) 13 . These measures will greatly stimulate generic and biosimilar competition.

Faster approval of generics and biosimilars

The approval process for generics and biosimilars must be simplified. A reciprocal regulatory approval process among Western European countries, the United States, Canada, and possibly other developed countries, can greatly reduce the redundancies 14 . In such a system, prescription drugs approved in one member country can automatically be granted regulatory approval in the others, greatly simplifying the regulatory process. This requires the type of trust, shared standards, and cooperation that we currently have with visa-free travel and trusted traveler programs 6 .

For complex biologic products, such as insulin, it is impossible to make the identical product 15 . The term “biosimilars” is used (instead of “generics”) for products that are almost identical in composition, pharmacologic properties, and clinical effects. Biosimilar approval process is more cumbersome, and unlike generics requires clinical trials prior to approval. Further impediments to the adoption of biosimilars include reluctance on the part of providers to trust a biosimilar, incentives offered by the manufacturer of the original biologic, and lawsuits to prevent market entry. It is important to educate providers on the safety of biosimilars. A comprehensive strategy to facilitate the timely entry of cost-effective biosimilars can also help lower cost. In the United States, the FDA has approved 23 biosimilars. Success is mixed due to payer arrangements, but when optimized, these can be very successful. For example, in the case of filgrastim, there is over 60% adoption of the biosimilar, with a cost discount of approximately 30–40% 16 .

Nonprofit generic companies

One way of lowering the cost of prescription drugs and to reduce drug shortages is nonprofit generic manufacturing. This can be set up and run by governments, or by nonprofit or philanthropic foundations. A recent example of such an endeavor is Civica Rx, a nonprofit generic company that has been set up in the United States.

Compulsory licensing

Developed countries should be more willing to use compulsory licensing to lower the cost of specific prescription drugs when negotiations with drug manufacturers on reasonable pricing fail or encounter unacceptable delays. This process permitted under the Doha declaration of 2001, allows countries to override patent protection and issue a license to manufacture and distribute a given prescription drug at low cost in the interest of public health.

Solutions: additional policy changes needed in the United States

The cost of prescription drugs in the United States is much higher than in other developed countries. The reasons for these are unique to the United States, and require specific policy changes.

Value-based pricing

Unlike other developed countries, the United States does not negotiate over the price of a new drug based on the value it provides. This is a fundamental problem that allows drugs to be priced at high levels, regardless of the value that they provide. Thus, almost every new cancer drug introduced in the last 3 years has been priced at more than $100,000 per year, with a median price of approximately $150,000 in 2018. The lack of value-based pricing in the United States also has a direct adverse effect on the ability of other countries to negotiate prices with manufacturers . It greatly reduces leverage that individual countries have. Manufacturers can walk away from such negotiations, knowing fully well that they can price the drugs in the United States to compensate. A governmental or a nongovernmental agency, such as the Institute for Clinical and Economic Review (ICER), must be authorized in the United States by law, to set ceiling prices for new drugs based on incremental value, and monitor and approve future price increases. Until this is possible, the alternative solution is to cap prices of lifesaving drugs to an international reference price.

Medicare negotiation

In addition to not having a system for value-based pricing, the United States has specific legislation that actually prohibits the biggest purchaser of oral prescription drugs (Medicare) from directly negotiating with manufacturers. One study found that if Medicare were to negotiate prices to those secured by the Veterans Administration (VA) hospital system, there would be savings of $14.4 billion on just the top 50 dispensed oral drugs 17 .

Cap on price increases

The United States also has a peculiar problem that is not seen in other countries: marked price increases on existing drugs. For example, between 2012 and 2017, the United States spent $6.8 billion solely due to price increases on the existing brand name cancer drugs; in the same period, the rest of the world spent $1.7 billion less due to decreases in the prices of similar drugs 18 . But nothing illustrates this problem better than the price of insulin 19 . One vial of Humalog (insulin lispro), that costs $21 in 1999, is now priced at over $300. On January 1, 2020, drugmakers increased prices on over 250 drugs by approximately 5% 20 . The United States clearly needs state and/or federal legislation to prevent such unjustified price increases 21 .

Remove incentive for more expensive therapy

Doctors in the United States receive a proportionally higher reimbursement for parenteral drugs, including intravenous chemotherapy, for more expensive drugs. This creates a financial incentive to choosing a more expensive drug when there is a choice for a cheaper alternative. We need to reform physician reimbursement to a model where the amount paid for drug administration is fixed, and not proportional to the cost of the drug.

Other reforms

We need transparency on arrangements between middlemen, such as pharmacy-benefit managers (PBMs) and drug manufacturers, and ensure that rebates on drug prices secured by PBMS do not serve as profits, but are rather passed on to patients. Drug approvals should encourage true innovation, and approval of marginally effective drugs with statistically “significant” but clinically unimportant benefits should be discouraged. Importation of prescription drugs for personal use should be legalized. Finally, we need to end direct-to-patient advertising.

Solutions that can be implemented by physicians and physician organizations

Most of the changes discussed above require changes to existing laws and regulations, and physicians and physician organizations should be advocating for these changes. It is disappointing that there is limited advocacy in this regard for changes that can truly have an impact. The close financial relationships of physician and patient organizations with pharmaceutical companies may be preventing us from effective advocacy. We also need to generate specific treatment guidelines that take cost into account. Current guidelines often present a list of acceptable treatment options for a given condition, without clear recommendation that guides patients and physicians to choose the most cost=effective option. Prices of common prescription drugs can vary markedly in the United States, and physicians can help patients by directing them to the pharmacy with the lowest prices using resources such as goodrx.com 22 . Physicians must become more educated on drug prices, and discuss affordability with patients 23 .

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Vincent Rajkumar, S. The high cost of prescription drugs: causes and solutions. Blood Cancer J. 10 , 71 (2020). https://doi.org/10.1038/s41408-020-0338-x

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The High Cost of Prescription Drugs in the United States : Origins and Prospects for Reform

• 1 Program On Regulation, Therapeutics, And Law (PORTAL), Division of Pharmacoepidemiology and Pharmacoeconomics, Department of Medicine, Brigham and Women’s Hospital and Harvard Medical School, Boston, Massachusetts
• Comment & Response Factors Influencing Prescription Drug Costs in the United States Jack L. Arbiser, MD, PhD JAMA
• Comment & Response Factors Influencing Prescription Drug Costs in the United States Victor Roy, MPhil; Luke Hawksbee, MPhil; Lawrence King, PhD JAMA
• Comment & Response Factors Influencing Prescription Drug Costs in the United States—Reply Ameet Sarpatwari, JD, PhD; Jerry Avorn, MD; Aaron S. Kesselheim, MD, JD, MPH JAMA
• Original Investigation Changes in List Prices, Net Prices, and Discounts for Branded Drugs in the US, 2007-2018 Inmaculada Hernandez, PharmD, PhD; Alvaro San-Juan-Rodriguez, PharmD; Chester B. Good, MD, MPH; Walid F. Gellad, MD, MPH JAMA
• Viewpoint A Court Decision on “Skinny Labeling”: Another Challenge for Less Expensive Drugs Bryan S. Walsh, JD; Doni Bloomfield, JD; Aaron S. Kesselheim, MD, JD, MPH JAMA

Importance   The increasing cost of prescription drugs in the United States has become a source of concern for patients, prescribers, payers, and policy makers.

Objectives   To review the origins and effects of high drug prices in the US market and to consider policy options that could contain the cost of prescription drugs.

Evidence   We reviewed the peer-reviewed medical and health policy literature from January 2005 to July 2016 for articles addressing the sources of drug prices in the United States, the justifications and consequences of high prices, and possible solutions.

Findings   Per capita prescription drug spending in the United States exceeds that in all other countries, largely driven by brand-name drug prices that have been increasing in recent years at rates far beyond the consumer price index. In 2013, per capita spending on prescription drugs was $858 compared with an average of $400 for 19 other industrialized nations. In the United States, prescription medications now comprise an estimated 17% of overall personal health care services. The most important factor that allows manufacturers to set high drug prices is market exclusivity, protected by monopoly rights awarded upon Food and Drug Administration approval and by patents. The availability of generic drugs after this exclusivity period is the main means of reducing prices in the United States, but access to them may be delayed by numerous business and legal strategies. The primary counterweight against excessive pricing during market exclusivity is the negotiating power of the payer, which is currently constrained by several factors, including the requirement that most government drug payment plans cover nearly all products. Another key contributor to drug spending is physician prescribing choices when comparable alternatives are available at different costs. Although prices are often justified by the high cost of drug development, there is no evidence of an association between research and development costs and prices; rather, prescription drugs are priced in the United States primarily on the basis of what the market will bear.

Conclusions and Relevance   High drug prices are the result of the approach the United States has taken to granting government-protected monopolies to drug manufacturers, combined with coverage requirements imposed on government-funded drug benefits. The most realistic short-term strategies to address high prices include enforcing more stringent requirements for the award and extension of exclusivity rights; enhancing competition by ensuring timely generic drug availability; providing greater opportunities for meaningful price negotiation by governmental payers; generating more evidence about comparative cost-effectiveness of therapeutic alternatives; and more effectively educating patients, prescribers, payers, and policy makers about these choices.

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Kesselheim AS , Avorn J , Sarpatwari A. The High Cost of Prescription Drugs in the United States : Origins and Prospects for Reform . JAMA. 2016;316(8):858–871. doi:10.1001/jama.2016.11237

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Understanding why health care costs in the U.S. are so high

The high cost of medical care in the U.S. is one of the greatest challenges the country faces and it affects everything from the economy to individual behavior, according to an essay in the May-June 2020 issue of Harvard Magazine written by David Cutler , professor in the Department of Global Health and Population at Harvard T.H. Chan School of Public Health.

Cutler explored three driving forces behind high health care costs—administrative expenses, corporate greed and price gouging, and higher utilization of costly medical technology—and possible solutions to them.

Read the Harvard Magazine article: The World’s Costliest Health Care

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Ninety percent of the nation's $4.5 trillion in annual health care expenditures are for people with chronic and mental health conditions. 1 2 Interventions to prevent and manage these diseases have significant health and economic benefits .

Heart disease and stroke

Nothing kills more Americans than heart disease and stroke . More than 934,500 Americans die of heart disease or stroke every year—that's more than 1 in 4 deaths. 3 These diseases take an economic toll, as well, costing our health care system $251 billion per year and causing $156 billion in lost productivity on the job. Costs from cardiovascular diseases are projected to top $1 trillion by 2035. 3

See the health and economic benefits of high blood pressure interventions .

Each year in the United States, 1.7 million people are diagnosed with cancer , and more than 600,000 die from it, making it the second leading cause of death. The cost of cancer care continues to rise and is expected to reach more than $240 billion by 2030. 4

See the health and economic benefits of interventions for breast cancer , cervical cancer , colorectal cancer , and skin cancer .

More than 38 million Americans have diabetes , and another 98 million adults in the United States have prediabetes, which puts them at risk for type 2 diabetes. Diabetes can cause serious complications, including heart disease, kidney failure, and blindness. In 2022, the total estimated cost of diagnosed diabetes was $413 billion in medical costs and lost productivity. 5

See the health and economic benefits of diabetes interventions .

Obesity affects 20% of children and 42% of adults, putting them at risk of chronic diseases such as type 2 diabetes, heart disease, and some cancers. Over 25% of young people aged 17 to 24 are too heavy to join the U.S. military. Obesity costs the U.S. health care system nearly $173 billion a year. 6

Arthritis affects 53.2 million adults in the United States, which is about 1 in 5 adults. 7 It is a leading cause of work disability in the United States, one of the most common chronic conditions, and a leading cause of chronic pain. Arthritis costs appear to be increasing and were estimated at over $600 billion in 2019. 8 9

Alzheimer's disease

Alzheimer's disease , a type of dementia, is an irreversible, progressive brain disease that affects nearly 7 million Americans, including 1 in 9 adults aged 65 and older. Two-thirds of these older adults (4.1 million) are women. Deaths due to Alzheimer's disease more than doubled between 2000 and 2019, increasing 145%. The cost of caring for people with Alzheimer's and other dementias was an estimated $345 billion in 2023, with projected increases to nearly $1 trillion (in today's dollars) by 2050. 10

In the United States, about 3 million adults and about half a million children and teens younger than 18 have active epilepsy —meaning that they have been diagnosed by a doctor, had a recent seizure, or both. Adults with epilepsy report worse mental health, more cognitive impairment, and barriers in social participation compared to adults without epilepsy. In 2019, total health care costs (epilepsy-attributable and other health-related costs) for noninstitutionalized people with epilepsy was $13.4 billion, of which $5.4 billion were directly attributable to epilepsy. 11

Tooth decay

Cavities (also called tooth decay) are one of the most common chronic diseases in the United States. One in six children aged 6 to 11 years and 1 in 4 adults have untreated cavities. Untreated cavities can cause pain and infections that may lead to problems eating, speaking, and learning. On average, 34 million school hours are lost each year because of unplanned (emergency) dental care, and almost $46 billion is lost in productivity due to dental disease. 12 13

See the health and economic benefits of oral disease interventions .

Risk Factors

Cigarette smoking.

Cigarette smoking is the leading cause of preventable death and disease in the United States. More than 16 million Americans have at least one disease caused by smoking. This amounts to more than $240 billion in health care spending that could be reduced every year if we could prevent young people from starting to smoke and help every person who smokes quit. 14

See the health and economic benefits of tobacco use interventions .

Physical inactivity

Not getting enough physical activity comes with high health and financial costs. It can lead to heart disease, type 2 diabetes, some cancers, and obesity. 15 Physical inactivity also costs the nation $117 billion a year for related health care. 16

Excessive alcohol use

Excessive alcohol use is responsible for 140,000 deaths in the United States each year, including 1 in 5 deaths among adults aged 20 to 49 years. 17 18 Binge drinking is responsible for over 40% these deaths. 17 In 2010, excessive alcohol use cost the U.S. economy $249 billion, or $2.05 a drink, and $2 of every $5 of these costs were paid by the public. 19 Three-quarters of these costs were due to binge drinking.

• Buttorff C, Ruder T, Bauman M. Multiple Chronic Conditions in the United States . Rand Corp.; 2017.
• National health expenditure data: historical. Center for Medicare & Medicaid Services. Updated December 13, 2023. Accessed February 6, 2024. https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/historical
• Centers for Disease Control and Prevention, National Center for Health Statistics. Multiple Cause of Death 1999–2019 on CDC WONDER Online Database website. http://wonder.cdc.gov/mcd-icd10.html . Accessed February 1, 2023.
• Mariotto AB, Enewold L, Zhao J, Zeruto CA, Yabroff KR. Medical care costs associated with cancer survivorship in the United States. Cancer Epidemiol Biomarkers Prev. 2020;29:1304–1312.
• Parker ED, Lin J, Mahoney T, et al. Economic costs of diabetes in the U.S. in 2022. Diabetes Care. 2023. doi: 10.2337/dci23-0085
• Ward ZJ, Bleich SN, Long MW, Gortmaker SL. Association of body mass index with health care expenditures in the United States by age and sex. PLoS One . 2021;16(3):e0247307.
• Fallon EA, Boring MA, Foster AL, et al. Prevalence of diagnosed arthritis—United States, 2019–2021. MMWR Morb Mortal Wkly Rep . 2023;72:1101–1107.
• Murphy LB, Cisternas MG, Pasta DJ, Helmick CG, Yelin EH. Medical expenditures and earnings losses among US adults with arthritis in 2013. Arthritis Care Res (Hoboken) . 2018;70(6):869–876.
• Lo J, Chan L, Flynn S. A systematic review of the incidence, prevalence, costs, and activity and work limitations of amputation, osteoarthritis, rheumatoid arthritis, back pain, multiple sclerosis, spinal cord injury, stroke, and traumatic brain injury in the United States: a 2019 Update. Arch Phys Med Rehabil . 2021;102(1):115–131.
• Alzheimer's Association. 2023 Alzheimer's disease facts and figures. Alzheimers Dement . 2023;19(4).
• Moura LMVR, Karakis I, Zack MM, Tian N, Kobau R, Howard D. Drivers of US health care spending for persons with seizures and/or epilepsies, 2010-2018. Epilepsia . 2022;63(8):2144–2154.
• Righolt AJ, Jevdjevic M, Marcenes W Listl S. Global-, regional-, and country-level economic impacts of dental diseases. J Dent Res. 2018;97(5):501–507.
• Naavaal S, Kelekar U. Hours lost due to planned and unplanned dental visits among US adults. Health Behav Policy Rev. 2018;5(2):66–73.
• Xu X, Shrestha SS, Trivers KF, Neff L, Armour BS, King BA. U.S. healthcare spending attributable to cigarette smoking in 2014. Prev Med . 2021;150:106529.
• U.S. Department of Health and Human Services. Step It Up! The Surgeon General's Call to Action to Promote Walking and Walkable Communities . Office of the Surgeon General; 2015.
• Carlson SA, Fulton JE, Pratt M, Yang Z, Adams EK. Inadequate physical activity and health care expenditures in the United States . Prog Cardiovasc Dis . 2015;57:315–323.
• Centers for Disease Control and Prevention (CDC). Alcohol-Related Disease Impact (ARDI).
• Esser MB, Leung G, Sherk A, et al. Estimated deaths attributable to excessive alcohol use among US adults aged 20 to 64 years, 2015 to 2019. JAMA Netw Open . 2022;5(11):e2239485. doi: 10.1001/jamanetworkopen.2022.39485
• Sacks JJ, Gonzales KR, Bouchery EE, Tomedi LE, Brewer RD. 2010 national and state costs of excessive alcohol consumption. Am J Prev Med 2015;49(5):e73–e79.

Chronic Disease

Prevalence, costs, risks, prevention, and management of chronic diseases in the United States

For Everyone

Public health.

Here’s how much hospital prices are rising - and why

Hospital prices are on the upswing, pressuring patients and slowing progress on efforts to trim overall inflation.

In April, prices for medical care rose 2.7% year-over-year, the Labor Department reported last week. Prices specifically for hospital services, meanwhile, rose 7.7%.

Related article: Hospitals charged private insurers 254% of Medicare in 2022: Rand

Prices on many consumer goods and services rose during the pandemic but historically, price increases for medical care have outpaced those of other consumer good and services. 

Since 2020, prices for medical care have increased 119.2%, compared with an increase of 85% for all goods and services, according to the Peterson-KFF Health System Tracker, which monitors the healthcare industry's performance. Prices for all medical care began declining in November 2022, hit bottom last September and then started climbing. 

The increases vary widely, and depend on more than the service offered. There are also differences between the increases for the list price, the price negotiated with third-party payers and what a cash-paying patient would be responsible for, according to an analysis of price increases for key service categories by Turquoise Health, a healthcare price transparency platform. 

For example, the list price of a chest X-ray increased 5.7% year-over-year in the first quarter, according to Turquoise. The negotiated price rose 4.2% while the cash-pay price increased 7.1%. A bed in the intensive care unit had a year-over-year first-quarter price hike of 6.1%. The gains were 1.8% and 5.3% for the commercial price and the cash price, respectively. 

The healthcare industry was able to mostly evade inflation during the COVID-19 pandemic as many patients avoided voluntary surgery, said Dr. David Lubarsky, CEO of Sacramento, California-based UC Davis Medical Center. That created pent-up demand for certain procedures once pandemic restrictions lifted.

Lubarsky also attributed the higher prices to hospitals not receiving sufficient reimbursements from insurers, which means some costs are passed along to patients, and to advancements in medicine.

"It's a different product," Lubarsky said. "And yes, it costs more. But in terms of what you're getting, is it [valuable?] The answer continues to be yes, that we are delivering greater value through the implementation of new science, new techniques, new procedures [and] new devices."

One potential factor that might offset some of the effect of higher prices is a shift in the payer mix, said Katherine Baicker, provost at the University of Chicago and an expert on health economics.

"As unemployment rates went down [post-pandemic], more people had insurance through their jobs, at the same time that Medicaid coverage went down," Baicker said. "So, you're probably seeing a change in the mix of who's paying for healthcare. Insurance very much affects the affordability for patients, as well as payments to providers, since Medicaid payments are usually much lower than private insurers'."

At the same time, however, recent research has shown an increase in claims denials. Final claim denials on inpatient care increased by more than 51% between 2021 and 2023, according to a report Tuesday from Kodiak Solutions, a technology company. 

The American Hospital Association attributed higher hospital prices to costs including staffing, supplies, drugs and equipment as well as inadequate reimbursement, particularly from Medicare and Medicaid.

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Call to disclose investment in clinical trials to combat high drug prices

Médecins Sans Frontières has launched a tool kit for costing clinical research and is urging others to use it to increase transparency

Photo credits: Flickr

Médecins Sans Frontières (MSF) has published itemised costs of a $36 million trial it conducted comparing different drug combinations for treating tuberculosis and wants others to follow suit, in a bid to foster transparency around the cost of clinical research.

It claims it is the first time detailed costs of an individual clinical trial have ever been shared publicly.

In a paper presented at a World Health Organisation conference in April, MSF says this exemplar demonstrates it is possible to collect precise data on costs, even when a study runs over a number of years and is staged in a number of countries. The charity has published the toolkit it developed to do this and is encouraging others to use it.

Estimates for full research and development costs for new drug development range from €40 million to €3.9 billion, and clinical trials are often the largest single cost in that process. Costs for phase II and phase III clinical are estimated between €4.7 million and €133 million.

Having more precise information about the cost of developing an individual product would inform governments and health care providers when negotiating reimbursement and access.

“If that’s the claim [on costs] that’s going to be made to back up high drug prices that restrict access, there needs to be some transparency so it can be scrutinised,” Roz Scourse, who was in charge of the MSF study, told Science|Business.

However, it is not possible to extrapolate from the costs of MSF’s tuberculosis trial, which assessed the comparative effectiveness of approved drugs, to the multiple stages of clinical development required to generate the safety and efficacy data needed to get regulatory approval for a novel drug.

Rather, MSF wanted to show that it is possible to publish a break-down of clinical trial costs to better inform discussions around drug prices and patient access.

Pharmaceutical companies publish overall R&D expenditure in their financial accounts, but the exact figures for individual products are a closely kept secret.

Generic versions of patented drugs

High prices that restrict access to HIV, hepatitis C and other drugs, is a common issue in low- and middle-income countries, but it is also increasingly recognised as a problem in Europe and other high-income regions, Scourse said.

It is also the case that since 2006 the Access to Medicines Foundation has been tracking efforts by the pharma industry to improve access. Its latest index published in 2022, found that companies are increasingly allowing generic versions of drugs that are still under patent to be manufactured for use in low- and middle-income countries.

Scouse said MSF’s example is important if clinical trials have been publicly funde d. “If you’re using public funding, there should be accountability and transparency” she said. The hope is that if public and non-profit bodies start sharing their R&D costs, it will put pressure on industry to follow suit.

The MSF toolkit aims to support this by offering a standardised template for reporting clinical trial costs, with costs broken down into 27 categories, in a bid to make publication less burdensome.

The toolkit was partly developed to facilitate information sharing under the proposed US Pharmaceutical Research Transparency Act, which would require drug developers to publicly disclose detailed costs of clinical trials.

The bill would require the National Institutes of Health to set up a publicly available database, including details of the total and per patient cost of clinical trials, and different costs such as personnel and health care services. Pharma companies would also have to include R&D costs in their annual financial reporting.

In 2019, the World Health Assembly adopted a resolution urging WHO members to enhance transparency on patents, clinical trial results and other determinants of pricing. For Scourse, this was a “key turning point” in highlighting the issue.

Industry maintains that assessing R&D costs for individual medicines is challenging, as it doesn’t always account for the majority of projects which fail at various stages of clinical research.

“The research-based pharmaceutical industry’s business model is based on portfolio investments across a broad range of science and not on individual products,” Nathalie Moll, director general of the European Federation of Pharmaceutical Industries and Associations (EFPIA), told Science|Business.

Moll argues drug prices should not be based on costs, but on the value the drug brings to patients and societies. Setting prices based on costs was the standard approach in several European countries in the 1970s and 1980s, but was later abandoned, she noted.

“This method not only created controversies about the measurement of costs but was also inefficient: on the one hand, it discouraged companies from seeking to reduce costs and on the other hand it inadequately rewarded added therapeutic value, leading to price discrimination according to the location of R&D and manufacturing units.”

Rather than improving access to medicines, she believes increased transparency of R&D costs for individual drugs would risk the publication of “inaccurate and misleading information” while disincentivising innovation.

“Full transparency of R&D activities may expose an inventor unnecessarily, making their invention accessible to everyone and subject to replication,” she said.

EU proposal

The European Commission is bidding to increase transparency as part of its proposed reform to the EU’s pharmaceutical legislation . If approved, the text would require drug developers to disclose any direct public funding. The European Parliament wants to extend this obligation to include direct funding from non-profits, as well as indirect public support, such as access to medical facilities and staff.

No definition is given for direct funding, but it primarily refers to direct grants and contracts to develop products, said Dimitri Eynikel, EU policy adviser for MSF’s access campaign. MSF advocated for the inclusion of indirect funding such as tax breaks and the use of public research infrastructure, laboratories and hospitals. “There should be some monetary value attached to this, because it uses public money,” Eynikel said.

He believes this could be a “transformative proposal”, as long as the plan to publish the funding information on a publicly available website is retained in the final text, ensuring non-governmental organisations and academics can analyse the data.

The EU’s pharma reform has sparked intense debate about how to strike the right balance between incentivising innovation and improving access to medicines. But a lack of transparency on everything from R&D costs and clinical trial data, to intellectual property and prices, is standing in the way of informed decisions, Scourse said. “There’s so much we don’t know in the whole biomedical R&D ecosystem that I think it’s impossible to have sensible policy conversations.”

MSF is not the only organisation pushing for more openness. In 2016, a coalition of consumer, patient and public health organisations launched the European Alliance for Responsible R&D and Affordable Medicines, which promotes transparency in policymaking as well as for R&D costs, drug prices and clinical trial data.

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CDC Report: 9 Million Americans Not Taking Medications as Prescribed Due to Cost

• New research from the CDC found that 9 million adults in the U.S. are not taking their prescription drugs as prescribed, due to the high cost of medications.
• Experts warn that not following the instructions associated with prescribed drugs can lead to catastrophic results.
• Pharmaceutical experts recommend patients research all of their options—both with insurance and without—to find the best cost for their medication.

A new report from the Centers for Disease Control and Prevention (CDC) cited the high cost of prescription drugs to cause more than 9 million adults to not take their medications as instructed.

Prescription drugs can be expensive, especially in the U.S. In fact, research shows that Americans spend more on prescription drugs per capita than people in any other country—or about $1,200 more per person. And these high costs are not without consequences.

The high cost of prescription drugs has caused more than 9 million adults between the ages of 18 and 64 to skip doses, take smaller amounts, or delay refills, according to a recently released report by the CDC. That number represents 8.2% of adults in 2021 who did not take the prescriptions they needed.

According to the CDC, women were most likely to skip or delay taking prescribed drugs. Those with disabilities were also impacted by rising drug costs, with 20% taking measures to ration their medications because of cost. And, people in poor health and those without health insurance also did not take their medications as prescribed due to the associated expense.

“Even when they are covered by their insurance, American patients who struggle to afford the cost of prescription drugs often choose not to take them,” Laura Purdy, MD, MBA , board-certified family medicine physician told Health .

“Many people are hesitant to take chronic disease-treating medications, such as those for diabetes, hypertension, or high cholesterol simply because of cost,” she said. “But, this dilemma can lead to a worsening health condition, hospitalization, or even death.”

Getty Images / Tom Werner

Prescription Drug Prices in the U.S.

A recent RAND Corporation study found that U.S. drug prices were 2.56 times higher than those in 32 comparable countries, with brand-name drug prices averaging 3.44 times higher. What's more, researchers note that across all of the Organization for Economic Co-operation and Development (OECD) nations studied, total drug spending was $795 billion, with the U.S. accounting for more than half of the sales or 58%, but just 24% of the volume.

“Branded medications are typically the most common for patients to stop taking,” explained Deepti Pidakala, PharmD , a pharmacist with Marley Drug, a full-service pharmacy that offers home delivery nationwide.

“They are expensive, require prior authorizations from insurance, and often are not covered at all,” she said. “This waiting period back and forth with insurance, along with the financial strain, causes many patients to stop taking their medications altogether.”

A Kaiser Family Foundation Health Tracking Poll found that eight in 10 adults said the cost of prescribed medications in the U.S. was unreasonable. Affordability is particularly an issue for those taking four or more prescription medicines. Researchers found that three in 10 of those taking four or more drugs have trouble affording their prescriptions, compared to one in five adults who currently take three or fewer prescription medications.

Affordability issues are likely to continue to worsen, especially since prescription drug prices have been on an upward trajectory. Drug spending in the U.S. increased by 76% between 2000 and 2017. These costs are expected to rise faster over the next decade than other areas of healthcare spending.

Risks Associated With Skipping Medication Doses

John Villanova, RPh , a pharmacist with Marley Drug, warned that skipping medication can have catastrophic results. “We know that prior authorizations and non-medical switching are hurting patients,” he said. “The same can be said for patients not taking their medications due to cost.”

Medications are meant to help people. But if they are not being taken as prescribed because people are rationing them, cutting pills in half, or skipping doses, then this can lead to poor patient outcomes. In the long run, it also can add costs to the healthcare system, Villanova noted. “Suppose someone with heart failure taking diuretic stops taking their medication; they could end up in the hospital with trouble breathing because their lungs are filling with fluid,” he explained. “Just go visit an ER or a long-term care facility, and you’ll see what I mean. This is happening every day.”

The Role of Health Insurance

Health insurance also plays a significant role in rising drug costs, added Rima Arora, PharmD , a pharmacist, and director of pharmacy at DiRx.

Health insurance companies have internal parameters to determine which medications will be covered or the tiers for coverage, under their formularies—all of which can lead to increased costs for the consumer. Sometimes even generic drugs are on their exclusion lists or have been adjusted to a higher tier costing the consumer more, she explained.

“We’ve reached a point now where out-of-pocket healthcare costs do not make sense,” agreed Neil Owens, PhD , the president and COO of Medicure. “Patients are often paying more with their co-pay than the actual medication costs.”

People then stop taking their medications or try to ration them because of the constant changes in their coverage and cost, he explained. “One month their medication is covered and the next it isn’t, or there are new requirements to meet. That makes people give up.”

Reducing Prescription Drug Costs

If you are finding that your medications are no longer affordable, you may want to speak with a pharmacist or the drug provider to see if there are less expensive options available, suggested Susan Lang , CEO and founder of Visory Health. “You can also ask your pharmacist for help in identifying cost-effective options so you can stay on your medication and stay healthy.”

Another option might be a drug assistance program that offers free or low-cost medicines if you don’t have insurance or cannot afford your medicine. You could also research co-pay assistance programs, generic drug options, and discount pharmacy cards like those offered by GoodRx and Visory Health.

Another option is to look into pharmacies that allow you the option to self-pay for your prescriptions instead of using your insurance like Marley Drug, Freedom Pharmacy, DiRx, and more. These types of pharmacies allow you to get your prescription at a cost that is significantly less than a traditional pharmacy might charge.

For instance, Abiraterone, which is used to treat prostate cancer costs $20,309 cash for 120 tablets from a national pharmacy chain and $2,835 with a GoodRx coupon, Villanova explained. Marley Drug’s price is $152 for 120 tablets, he noted.

“By sourcing directly from manufacturers, pharmacies can bypass the system intermediaries such as drug wholesalers and PBMs (pharmacy benefit managers) to lower prices for consumers,” added Arora. “Online pharmacies are also offering programs where a preset number of prescriptions and unlimited refills are provided for an entire year to consumers for a very low annual fee.”

Keep in mind that when using traditional pharmacies, the price will be the same no matter where you go when you fill through insurance, emphasized Pidakala. “Americans don’t realize that you can forgo your insurance and pay cash.”

Because the self-pay price at these pharmacies may vary widely in the U.S., it is important to do your research, though. It’s also important to note that even though these pharmacies are cash-based, they still may accept your HSA credit card or other payment cards. Also, some may be state-specific and others may be able to offer prescriptions regardless of where you live.

Overall, if you are overwhelmed with your drug costs, Dr. Purdy suggested starting by opening a discussion with your healthcare provider. “Find out about other treatment options, less expensive generics, or patient-assistance programs provided by non-profit or pharmaceutical organizations. You also can speak to local lawmakers to make prescription drug affordability a top priority.”

Mykyta L, Cohen RA. Characteristics of adults aged 18–64 who did not take medication as prescribed to reduce costs: United States, 2021 . NCHS Data Brief . 2023;(470). doi:10.15620/cdc:127680

University of California. Why are prescription drugs so expensive? It’s not necessarily high R&D, new study shows .

RAND Corporation. Prescription drug prices in the United States are 2.56 times those in other countries .

Kaiser Family Foundation. Public opinion on prescription drugs and their prices .

Asthma and Allergy Foundation of America. Drug assistance programs .

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