Price controls could be the key for an affordable health plans
As the debate around repeal and replacement of the Affordable Care Act drags on, the discussion remains centered on reforming the insurance marketplace. To achieve affordable healthcare, the debate needs to pivot and focus on the cost of services and consumption of services.
If we were to look at countries like Canada, Australia, and those in Europe, for example, there is a core, ideological difference that must be understood. Other countries have a very different social contract with its citizens and each country — on its own — have much smaller populations to address than in the United States to manage their healthcare systems. Thus, there are pros and cons to each country’s approach to healthcare policy.
A key difference to illustrate is the cost of services. We will use our neighbors to the north as a comparative.
Starting with physician salaries, Canadian doctors earn far less than their counterparts in the US. The average physician salary in Canada in 2017 according to Indeed.com, is $206,839 CDN based on 1,503 individuals sampled. This equals $162,375 in U.S. dollars. By comparison, the average primary care physician’s salary in the U.S. in 2017 is $217,000 and a specialist’s salary is reported to be $316,000. according to Medscape data, Canadian-trained physicians in the USA were paid slightly more than their U.S. trained counterparts.
Next, comparing the costs of pharmaceutical drugs is shocking. Interestingly, according to the IMS Health report, 15 drugs represent 12% of the total prescription drug sales globally. Based on their report Humira was the number one drug in global sales.
Looking at those top 15 drugs on pharmacychecker.com, we can compare costs of purchasing certain drugs in the United States versus Canada. For our comparisons, brand-named medications were compared; generics were not considered because it is assumed to cost less. The lowest cost provider was chosen if there were multiple choices. Walmart was usually the cost leader in the U.S. to purchase the medication. Finally, medications that had the same day supply and milligram values to be fair in the cost comparison model.
Here is what the data produced:
- Humira (arthritis, psoriasis, bowel disease) — 40mg drug cost $2,736.00 in Canada and $4,695.83 in the U.S.
- Sovaldi (Hepatitis C) — 28 day supply cost $25,010.00 in Canada and $29,578.60 in the U.S.
- Abilify (mental illness) — 30mg drug / 30 day supply cost $272.72 in Canada and $1,337.24 in the U.S.
- Nexium (acid reflux) — 40mg / 30 day supply cost $59.76 ($1.99 per pill) in Canada and $270.04 ($9.00 per pill) in the U.S.
- Januvia (diabetes) — 25mg / 100 day supply cost $189 ($1.89 per pill) in Canada pill) and $1,405.52 ($14.06 per pill) in the U.S.
The numbers say it all.
So, what is happening? There is strong profit motive within each part of the healthcare delivery system in the U.S. that is not as present in other countries. The results above demonstrate that medications purchased in the U.S. have a higher cost so we could conclude that the drug manufacturers take their profits from the U.S. market and pay shareholders or reinvest in research and development of new drugs that can be used to treat, and perhaps cure a disease.
But this begs the question: Do the costs paid by the U.S. purchaser (and in the case of an employer-sponsored plan, the claim cost charged to the plan) create a competitive cost disadvantage compared to countries that the U.S. employer is competing against?
The bottom line: if the U.S. wants to have an affordable healthcare system, a strategy to consider is wage and price controls. In short, we should pursue a national healthcare policy that modifies the profit motive throughout the U.S. healthcare system. If this becomes the chosen path, transforming to a single payer system, which is managed by the government, will be the natural outcome and will present other challenges for the United States.