A little over two decades ago, I learned how lucrative the pharmaceutical industry could be. The father of a friend of mine, who was nearing retirement after a career with a drug company, was discussing how nice their recent company picnic had been. He went on to mention that they brought in a well-known band to play the event. The band?
U2. At a company picnic.
That’s what giant profit margins can do for you. A 2019 analysis by the West Health Policy Center and the Johns Hopkins Bloomberg School of Public Health found that large, brand-name drug manufacturers would still be the most profitable industry sector even with $1 trillion in lower sales, all while maintaining current research investments. And that was before the coronavirus hit.
Since 2004, the Utah Foundation has regularly conducted statewide surveys to determine Utahns’ top priorities. Health care costs and accessibility has been a top-five issue in every survey — and the No. 1 priority in both 2016 and 2020.
In recent years, the Utah Foundation published a series of reports on the drivers of health care costs around medical services, insurance and Medicaid. Among the cost drivers on which we focused were pharmaceutical and administrative costs.
And in a recent Utah Foundation/Intermountain Healthcare Breakfast Briefing on health care costs and access, those were some of the very cost drivers on panelists’ minds. The group included Sophia DiCaro, Executive Director of the Utah Governor’s Office of Planning and Budget; Andrew Croshaw, CEO of Leavitt Partners, a national health care intelligence firm founded by former Utah Gov. Mike Leavitt; and Dan Liljenquist, Senior Vice President & Chief Strategy Officer at Intermountain Healthcare, and lead architect of Civica Rx, a nonprofit initiative to produce affordable generic medications.
DiCaro laid out the fiscal challenges associated with Medicaid. She pointed out that in 1998, about 6% of the state’s population was on Medicaid, with the program consuming about 13% of state general fund spending. Fast-forward two decades, and the rolls increased to 10% of the population – but by fiscal 2019 the program was consuming 32% of Utah’s general fund expenditures.
Croshaw put this in a larger perspective, where we see health care spending making up an increasing proportion of consumer spending and far outpacing the rest of the economy in cost inflation. He also explained that in the U.S., where as much as one-third of health care spending may be going into administrative costs, we’re spending much more overall than peer countries. For instance, he said, the average number of doctor visits per year in the U.S. is about four, and the average spent per capita is roughly $11,000 per year. Among our industrialized peer countries, spending is less than half – closer to $4,000 per year – despite a higher number of doctor visits (seven). The average cost of surgical procedures in the U.S., he said, is twice as much as the next most expensive country. The same holds true for the cost of branded drugs.
That’s part of the reason Liljenquist founded Civica Rx. He saw those massive pharma profit margins and the industry’s outsized influence over government policy and spending as a destabilizing influence on health care. Since its founding in 2018, Civica has rapidly expanded its partnership to roughly 1,400 hospitals – more than one-third of the total in the U.S. – and is producing about 50 generic drugs. Liljenquist says this has stabilized the supply of those drugs and provided them at substantially reduced prices. And this is just a few years in. To hear Liljenquist talk, you get the sense that Civica is off to the races.
Croshaw says one of the key underlying causes of health care cost inflation is a poor alignment of incentives among health care actors. He finds it noteworthy that solutions to the excesses of big pharma are emanating not from the federal government or the industry itself, but from a nonprofit health care entity in little Utah. Meanwhile, the exponential growth in telehealth over the past year may allow providers to reach farther afield to give Utahns health care access at a lower cost.
Taken together, these movements suggest that the way may be opening up to an invasion of innovations to help the U.S. get health care costs under control. If that happens, Utah is already in position to stand on the front lines.
Peter Reichard is president of the Utah Foundation, a nonpartisan, nonprofit public policy research organization. Reach him at email@example.com.