Humans are generally lousy when it comes to understanding statistics. We tend to panic over remote risks (shark attacks are on the rise!) but dismiss larger but more mundane dangers like pedestrian deaths (2016 was the deadliest year on record in the U.S.).
That’s especially true when those risks are presented as relative risks, rather than absolute numbers. An 11 percent jump in shark attacks sounds substantial, but it means nine or so additional bites. Last year’s 11 percent jump in pedestrian fatalities meant hundreds more lives lost. Guess which topic received more attention?
We’re seeing the same statistical phenomenon — where the focus goes in the wrong direction — in discussions of health system spending. A recent report in the Journal of the American Medical Association was greeted with pointed headlines about how drug pricing has accelerated our spending on pharmaceuticals. According to this report, between 1996 and 2013 there was a relative 50 percent increase in drug spending due to increases in the prices of pharmaceutical products and the use of more advanced therapies.
That sounds huge. But here’s where we need to step back and understand the rest of the study before the results and conclusions are used to argue for radical solutions that would reduce innovation in health care, particularly around new medicines.
A closer look at the absolute numbers tells a different story than the headlines. The JAMA study sought to determine how much of our spending on different kinds of health services from 1996 to 2013 was due to changes in the size of the population, the aging of the population, the prevalence or incidence of disease, how much the service was used, and a metric called service price and intensity. The latter melds both the price of a health care service and the intensity of care: whether treatment consisted of older, less-expensive interventions or newer, higher-priced ones.
In this 17-year time period, prescription drug spending went up by slightly more than $175 billion. That’s a lot of money. Yet more than two-thirds of that increase could be accounted for by the fact that there were more Americans, more older Americans, and more prescriptions being written in 2013 as compared with 1996. About $44 billion of the increase was due to rising service price and intensity.
Forty-four billion dollars isn’t peanuts. To put it into context, though, the service price and intensity for hospital use rose by $333 billion over the same 17-year period. That increase was driven almost entirely by hospitals charging more, offering services and procedures that were more expensive, or both.
This analysis provides an understanding of the drivers of the growth in health care spending from 1996 to 2013 and shows that much of the growth relates to demographic changes and providing treatment to additional patients in need.
Even if this analysis only begins to scratch the surface of what health policymakers should focus on, it provides — at a minimum — a strong argument against the idea that the concerning $933 billion rise in health care spending since 1996 could be magically fixed by a draconian approach to drug price increases, which were responsible for no more than $44 billion of that sum.
To be sure, there are common-sense approaches that might positively affect medication spending by closing loopholes or ensuring the appropriate use of therapies to avoid wasteful care.
But we should also be looking for other places in the health care system where we use more services or where prices have gone up, and consider what we receive for that spending. Take, for example, the additional revenue flowing to hospitals, which has helped fund a construction boom. Policy experts should be exploring whether having more hospitals, or having more hospital-controlled health care services, is a good thing, and asking what kind of returns can we expect to see from that investment in new construction, both financial and in terms of improved health.
What did the $44 billion in pharmaceutical spending attributed to service price and intensity get us over this 13-year period? There have been some great — if quiet — public health triumphs recorded in the past two decades that have their origin in pharmaceutical treatments. Heart deaths? Down 27 percent in less than two decades. The cancer death rate? Down 8 percent. Stroke? Down more than 30 percent. Some of these improvements are the result of medication breakthroughs, including some that are now available for pennies a day as generic drugs.
I’m not saying that health policy experts shouldn’t scrutinize drug pricing. They should. But we should also compare the investments made possible by drug sale revenue with the impact on patients, and do the same thing for hospital costs and other health care spending that make up an even larger percentage of our investment in health care. We need to understand all of the factors that will lead to lower costs down the road, what will improve the health of the population, and what will provide incentives for future innovation. Our spending should be commensurate with the benefit that it brings to patients.
That’s a staggeringly complex equation, and one that we can’t begin to solve unless we back away from comfortable — and wrong — relative risk narratives.
Robert W. Dubois, M.D., is the chief science officer and executive vice president of the National Pharmaceutical Council, a health policy research organization supported by the nation’s major research-based biopharmaceutical companies.