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  • Brendan Shaw

Myths and legends in pharmaceutical spending

Anyone looking at the debate over health spending would think that health systems around the world are being bankrupted by how much countries spend on medicines. The debate about drug pricing, ranging through government and international inquiries, conference debates and presidential tweets, could give the impression to the unaware observer that spending on medicines is blowing health budgets out of control and countries simply can’t afford it. The political debate and rhetoric we have seen has focussed on medicines spending as the issue to be addressed in health financing.

Well, new data from the OECD countries at least has put this into perspective. In its latest edition of Health at a Glance, the OECD provides data showing the growth rates in what OECD countries spend on health by category. And the results are telling.

At least as far as OECD countries are concerned, the emotion around drug spending looks somewhat absurd looking at the figures. In the period 2009 to 2015 across 31 OECD countries, the inflation-adjusted average annual per capita growth rate of spending on pharmaceuticals was –0.5 per cent. Yes, you read that correctly, it was negative. This means that spending on medicines was the slowest growing area of health expenditure in OECD countries since the beginning of the 2010s.

Even more revealing, over the same period spending on other areas of healthcare grew significantly faster each year. Inpatient care (essentially hospital spending) grew by an average 1.3 per cent per annum, while outpatient care (doctor services, clinics outside the hospital and the like) grew by 2.3 per cent per annum – and both of these areas would explain the lion’s share of growth in health spending over the period as together they account for a majority of total OECD health spending. Meanwhile, long term care (longer term health care for the elderly and dependent populations) grew by a significant 3.2 per cent per annum.

Moreover, even in the previous period from 2003 to 2009, inflation-adjusted average annual growth in per capita pharmaceuticals spending was at the lower end of the range compared with other areas of health expenditure.

This is not to dismiss the debate on medicine pricing per se, nor is it dismissing that figures change over time or that there will be variation between different OECD countries or that spending on medicines has contributed to past growth in health spending. But it does help put into perspective the current level of attention and rhetoric being used in the often political and ideological debate about the sustainability of funding medicines in the health system.

So why does so much attention get put on pharmaceutical spending when these figures suggest that government ministers and politicians nervous about health spending should look elsewhere if they are serious about managing it?

This is where we start to leave the world of economics and data and enter the murkier world of politics and perception. It’s a political reality that it is easier for a health minister to pursue savings in the pharmaceutical sector than in other parts of the health system. In part, this is due to the greater visibility of spending on medicines and medicine prices. Health systems often have a rigorous assessment process to evaluate medicines prior to them being introduced to a health system, and the price of medicines gets a lot of visibility and media attention. The same can’t be said of other parts of health systems. We also see that occasionally a new, expensive medicine will catch the headlines, whereas regular, often huge, price drops in medicines don’t get anywhere near the same media coverage or political attention.

It is also due to the politics of the healthcare debate. Politically, it is often easier for politicians and activists to go after the pharmaceutical industry and advocate cuts for drug companies than it is to reform nursing services, price public health services efficiently, close inefficient hospitals, stop ineffective or inefficient surgical procedures, or price payments to healthcare professionals efficiently. It’s a much easier political message to crusade against the ‘multinational drug companies’ than it is to take on a difficult reform discussion with local political stakeholders in your own country.

Again, this is not to say that the debate about pharmaceuticals is not important. It's just to observe that, at least in the OECD countries, the level of political interest in pharmaceutical spending seems disproportionate to what has been driving growth in health spending since the beginning of the decade. The OECD data would suggest that governments, health funders and international organisations could spend more of their time and energy worrying about those larger parts of the health system that are driving growth in health spending rather than those that are reducing it.

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