Commentary: Paying For Pills Won't Pay For Itself

Prescription drugs can help stave off heart attacks, prevent hip fractures, and cut the risk of stroke. That's one reason the share of the U.S. health-care bill devoted to pharmaceuticals is now more than 7% and rising. And since seniors represent a major chunk of drug use, adding such coverage to Medicare, as President Clinton has proposed, will ripple though the health-care industry--and the economy. Some experts even hope the plan will help to curb costs by avoiding costlier therapies.

In the short term, the impact on drugmakers would be mixed, analysts say. Pharmaceutical companies would see modest increases in demand. But the plan would also bring discounts negotiated by managed-care insurers. Clinton Administration bean counters peg the average discounts at 10% to 15%; others put it as high as 35%.

Insurers would also have short-term gains and losses. Many seniors now buy Medigap plans for prescription drug coverage. Under the Clinton plan, the government would pick up half the tab (up to $2,500 in payments) in exchange for an annual $24 premium. That's cheaper than most Medigap policies, meaning that many Medigap plans would dry up, analysts say. On the other hand, rising drug prices are a major reason why managed-care plans are dropping Medicare patients. With Uncle Sam sharing the cost of drugs, "I think HMOs will be back in the Medicare market," says industry analyst Hemant K. Shah of HKS & Co.

But would a Medicare drug benefit cut health-care costs over the long haul? That would be a boon to insurers, who would have to pay for fewer hospitalizations, operations, and other procedures.

For specific diseases, there's growing evidence that drugs can indeed save a bundle (table). One study shows that anemia fighter erythropoietin saves about $2,000 per patient per year by reducing costs of treating anemia associated with dialysis. Blood pressure-lowering beta-blockers also cut costs. "We can prove to you that proper [drug] treatment for asthmatics will significantly reduce the overall cost of treatment," says Richard J. Kogan, chairman and CEO of Schering-Plough Corp.

SAFER. Moreover, a federal subsidy might bring treatment to Americans who don't get the drugs that could help them avoid illness and injury. Take osteoporosis, which can turn a minor fall into a major injury. "Twenty million women in the U.S. have that disease, yet only about 3 million women are being treated," says Merck & Co. CEO Raymond V. Gilmartin.

But dispensing more drugs won't necessarily cut overall costs. Some drugs taken by largely healthy people for long periods of time, like the cholesterol reducer simvastatin, have raised the overall bill in a clinical study. "It is impossible to generalize across all diseases and say that drug therapy is cost-effective," says Raulo S. Frear, vice-president for clinical services at Express Scripts Inc., a pharmacy benefit manager in St. Louis.

And in some respects, greater drug use could fuel health-care inflation. Incorrect use of prescription drugs is a problem that costs as much as $150 billion per year in additional treatment. Then there is the rising price of new drugs, notes Alan L. Hillman, director of the Center for Health Policy at the Wharton School. Those who argue that drugs will cut costs "miss the point that medications are becoming just as expensive as highly invasive procedures," he says. There are many moral, social, and public health reasons to consider Clinton's Medicare drug plan. Just don't expect it to cut health-care costs.