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Prescription Drugs

Controlling Drug Cost Growth

But the sword that has been most effective against the progress of disease is double-edged and also cuts deeply into the budgets of those who are responsible for paying for the health care products for which consumers are clamoring. Private insurers and managed care organizations have been hit particularly hard by this trend, now covering more than 50 percent of the $117 billion spent on prescription drugs in 2000 (up from a 3.5 percent share in 1965). Managed care organizations have responded with a number of mechanisms aimed at controlling pharmaceutical cost growth, but this area continues to pose challenges to the industry.

The two papers that follow offer revealing glimpses of experience with pharmaceutical cost growth in two other nations: Canada and Australia. Unlike the United States, the health care systems of both of these nations are primarily publicly financed. But the basic problem remains the same for both public and private payers: how to allow access to life-saving but expensive innovations without breaking the bank. In the first paper Devidas Menon shows that although Canada has had some success in controlling prices, putting the brakes on overall cost growth has proved more elusive. Donald Birkett, Andrew Mitchell, and Peter McManus then describe Australia’s Pharmaceutical Benefits Scheme (PBS), which generates a list of pharmaceuticals that are approved for subsidized purchase. The scheme has achieved some of its objectives but has failed to make much headway on cost growth.

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