How Big Pharma Makes American Healthcare Spending Vanish

By Matteo Lee

The U.S. is often at the forefront of world news, implicated in shocking headlines involving policy decisions, violent crimes, and political actions. However, these headlines often fail to mention more subtle issues, such as inefficient healthcare spending, which reached $4.5 trillion in the U.S. in 2022 [1]. Spending averages $13,493 per person but fails to produce positive health outcomes similar to other wealthy countries [1]. As we approach a historic election cycle, the American public will be dragged into inevitable debates over big-picture concerns, and may overlook more pervasive issues like rising healthcare costs, which continue to grow without equivalent increases in healthcare quality.

The Inflation Reduction Act, passed in 2022, is a multifaceted bill addressing climate change, the economy, and healthcare costs, and includes a $433 billion investment into clean energy and healthcare initiatives [2]. Although the bill primarily focused on other issue areas, its impact on healthcare was equally significant. The legislation allowed Medicare to negotiate prices for specific drugs and empowered Medicare to penalize pharmaceutical companies that refused to comply with the new adjustments [2]. Additionally, the bill capped out-of-pocket costs at $2,000 beginning in 2025 for participants in Medicare Part D, the prescription plan created for seniors [2].

The act was a crucial step toward healthcare reform in America, demonstrating clear support for Medicare expansion despite opposition from the powerful pharmaceutical industry. However, further efforts are necessary to make healthcare more affordable and to shift the focus toward improving individuals’ health outcomes. This reform must include placing further regulations on the pharmaceutical industry and changing incentives from being primarily monetary to emphasizing measurable health outcomes.

To fully understand the effects of the Inflation Reduction Act on the healthcare industry, the results of the changes to Medicare Part D must also be considered. This means only a partial analysis can be conducted until the legislation is fully implemented. The first step in this analysis is diagnosing the current issues in American healthcare, most of which stem from a lack of affordability and accessibility.

Recent price increases highlight the worsening situation of unaffordable healthcare costs. One study found steeper increases in the cost of Medicare Parts B and D drugs than the rate of inflation in 2020 [3]. This disproportionate price hike mirrors trends in rising housing and grocery costs and is generally not supported by sufficient salary growth. To worsen an already dire situation, the U.S. spends more on prescription drugs than similar countries. A 2019 study found that the U.S. spent over $1,000 per capita on prescription drugs, an increase of 69% since 2004 [2]. In comparison, other high-income nations spent an average of $552, with spending increasing by only 41% in the same timeframe [2]. Those who cannot afford rising costs often postpone or cancel care, as shown by a 2021 JAMA study, where 51% of uninsured adults delayed potentially vital care [4].

As we approach the two-year anniversary of the Inflation Reduction Act’s passage, it is clear that the legislation has positively impacted the healthcare industry. Nearly 15 million people now save an average of $800 annually on health insurance premiums, including millions of seniors who pay less in out-of-pocket costs [5]. This has led to a historically low rate of uninsured individuals [5]. Additionally, drug companies are now forced to pay rebates to Medicare if they raise prices faster than inflation, allowing Medicare to lower copays for those drugs, saving seniors up to $449 per dose for certain medications [5].

Of course, no policy is without faults. Stakeholders in the pharmaceutical industry argue that the Inflation Reduction Act was too extreme. Stephen Ubl, CEO of the Pharmaceutical Research and Manufacturers of America, claimed that the policy would lead to fewer new breakthroughs due to slowing innovation [6]. However, this claim requires time to be fully evaluated, as there is no evidence of a significant decline in breakthroughs so far. This indicates more room to advocate for changes against corporate greed in healthcare without significantly hindering innovation. To accomplish this lofty goal, the first step is to begin limiting the money—and thus the influence—of wealthy pharmaceutical corporations. While this strategy will not fully eliminate their influence, purchasing prescription medicines from companies like GoodRx or WellRx allows the American public to collectively begin reclaiming control of the healthcare industry from wealthy corporations and placing it back into their hands.

Works Cited