A fast way to cut health care costs

by Daniel R. Hoffman, Ph.D.

Published Sep. 5, 2013, 6:00 a.m. ET

By this point it is widely understood that health care costs represent the largest single factor behind growing federal budget deficits. During 2009 and 2010 the Obama administration argued for passing the Affordable Care Act by claiming it would substantially slow this drain on federal spending. Yet since the ACA was passed in 2010, it has become far more unlikely that Obamacare will do much to slow the pace of health care spending. While some of its provisions, such as encouraging Accountable Care Organizations and electronic medical records, will exert some marginal spending improvements after many years, health care will continue consuming more of America's GDP.

Short of a major overhaul to US health care in the form of a single-payer system, reducing costs without sacrificing access and quality will require several smaller improvements. Without such changes Americans will continue paying far more per person for health care than any other nation, while continuing to endure a system that's worse than those in other advanced countries.

One small-scale tweak that can directly reduce Medicare spending recently emerged from the findings of Dr. O. Kenrik Duru and his colleagues at the UCLA medical school. Their work in the latest Journal of General Internal Medicine (see here) points to immediate cost savings that can result if pharmacies receive authorization to make therapeutic, brand-for-brand substitution.

Currently pharmacists are encouraged by payers to substitute generic drugs for equivalent brands that are vastly more expensive. Therapeutic substitution, on the other hand, involves using a less expensive, non-equivalent medication that produces therapeutic effects similar to those of the prescribed, costlier drug. Approximately 90% of US hospitals already do this for in-patients, but the practice occurs only rarely in outpatient settings.

Duru reported that permitting pharmacists to practice therapeutic drug substitutions for outpatients can double or triple the annual cost savings gained from generic substitutions. As a result of therapeutic substitution, Medicare Part D would save several hundred dollars per year for each of the 28 million Americans who receive that benefit.

The concept of therapeutic substitution as a public policy is by no means new. Discussions of it emerged during the 1980s and, in one form or another, it may even be older. Over the decades several obstacles prevented its adoption, chief among them the pharmaceutical industry, practicing physicians, and community pharmacists.

Practicing pharmacists steered clear of therapeutic substitution mainly out of concern that they would create legal liability issues for themselves by going against prescribing orders. Such concerns appear well founded, but rather than invalidating the substitution concept, they suggest the need for effectively implementing it with measures such as substitution guidelines. Pharmacists would first need access to a patient's therapeutic history. Then payers and their agents, such as pharmacy benefits managers, would have to economically incentivize both the patient and the pharmacist in much the same way they currently do to promote generic substitution. Finally, and most difficult of all, one or more therapeutic commissions would need to issue guidelines to the effect that if a patient with condition X is prescribed drug one, under conditions P, Q or R, she may receive drug two as a substitute. The impediment there is that many of the leading clinicians in academic medicine that typically serve on such commissions are beholden to the pharmaceutical companies for research grants, speaker fees and other payoffs.

The pharma industry and its vaunted lobby would doubtlessly fight like cornered wolverines to prevent therapeutic substitution. As part of their opposition, pharma would flood jurisdictions with millions in political campaign contributions, while also deluging the airways with deceptive TV commercials. One can easily imagine how pharma's George-and-Martha TV ads would promulgate distorted messages about pharmacists and payers perversely defying the wishes of prescribing physicians.

The several billion dollars that Medicare would save on drug costs from therapeutic substitution actually represents pocket change for pharma. Marc-André Gagnon of Carleton University and Joel Lexchin of York University estimate that in 2004 pharma spent $57.5 billion promoting to US physicians (see here). As the industry's domestic US sales that year were $235.4 billion, pharma spent nearly 25% of its dollar sales volume promoting to physicians. That was substantially more than the 13.4% of sales spent on R&D. Since 2004 the percentage of sales that pharma spends on R&D has declined. So if pharma eagerly sacrifices its own, long-term growth prospects in its relentless pursuit of quarterly earnings, the likelihood that the industry would do its part to help the larger health care system or the domestic economy by permitting therapeutic substitution seems minimal.

The other historic impediment to therapeutic substitution has come from physicians, particularly those in smaller practice groups and in more rural settings. Traditionally they viewed the policy as a threat to their decision-making authority, with their principal motive consisting of an economic territory defense. The smaller component of their objection rested on the assertion that they possess the greatest awareness of patient histories and, together with their unique training, this enables them to make the wisest therapeutic decision.

Technology and the increased professionalization of allied health practitioners has obsolesced the second objection which, at one time, held some validity. These days health care professionals in pharmacy, nursing and other fields often possess more knowledge about therapeutics than physicians. Furthermore, the advent of electronic medical records makes it possible for others outside the treating physician's office to peruse a patient's history. This enhances collaboration among the various professionals (the so-called "therapeutic triad"), something that numerous studies have found to be a more beneficial approach.

At the same time, the institutional structure of medical practice has been shifting in recent years so that a large and growing number of physicians work as contract employees of large, hospital-based organizations. For this reason the role of individual practitioners as therapeutic decision-makers has been reduced. Prescribing behavior now must follow formulary guidelines that are established by therapeutic committees. In this way operating principles have been established that make prescribing a business-to-business interaction that takes place between individual physicians, their respective provider organizations, and payers.

So pharmacists and physicians will no longer lead the opposition to therapeutic substitution. That would come from pharma. If a movement for therapeutic substitution gains momentum, pharma will provide the opposition with money and political clout, while using bought-and-paid-for professionals in medicine and pharmacy as their front men. Such is the lay of the land for anyone trying to reduce health care costs and government spending.