The pharmaceutical industry last week agreed to lower costs by $80 billion to help pay for health care reform and to narrow the Medicare Part D "doughnut hole," the gap in coverage during which seniors and the disabled must pay the total cost of their drugs. Is the $80 billion enough?

Sen. Olympia Snowe, R-Maine, called it "a modest percentage of the over $220 billion in annual spending on prescription drugs in the U.S." and said health reform could substantially increase drug sales. Snowe and Sen. Byron Dorgan, D-N.D., have pushed for legislation to allow Americans to import drugs approved by the Food and Drug Administration from other countries.

Other proposals would require drugmakers to take deeper discounts in sales to Medicaid patients and allow the Health and Human Services secretary to negotiate directly with drugmakers for prices on drugs for Medicare beneficiaries. Many also want to create a pathway at the FDA for the approval of generic biologics.

I propose that all those considering health care reform remember to take the perspective of the patient and health consumer. For each procedure what needs to be included as part of any cost or effective analysis there is also a new measure that takes into account consumer’s assessment of PAID (pain, absence from work, invasiveness of procedure, and disability.) for each procedure under consideration. Patients need more information but it is more than just cost of the procedure.

Chronic diseases, such as cancer, heart disease and diabetes, account for 75 percent of all health care spending in America today.  And that's why PhRMA has a long history of support for public health initiatives to fight chronic medical conditions.  It is vitally important that we focus reform efforts on disease prevention and management.  President Obama's call for a new emphasis on prevention will help transform our nation's "sick-care" system into a 21st Century health care system.

Studies show that medicines can be one of the most effective ways to fight chronic diseases and reduce costs.  They often prevent patients from developing full-blown disease and help to drive down the cost of surgery and hospitalization.  What's more, medications account for only 10 cents of each health care dollar and IMS Health reports that last year, spending on prescription medicines grew by just 1.3 percent over 2007.  That is the lowest growth rate since 1961.

The ability of medicines to help patients avoid full-blown disease and death can be profoundly dramatic.  For example, a study published in the journal Health Affairs in 2007 found that 89,000 premature deaths and about 420,000 hospitalizations could have been avoided if blood pressure medicines had been more widely available and properly used.  Another study by economist Frank R. Lichtenberg says each dollar spent on new medicines results in more than $6 in health care savings.  

As part of health care reform, we need to address the consequences of patients not taking their medicines as prescribed -- non-adherence costs America $100 billion to $300 billion a year in avoidable hospitalizations, surgeries and nursing home admissions.  We also need to preserve and develop policies that foster medical innovation.  Without the development of new treatments and delivery systems, the number of cases of Alzheimer's disease and other diseases could increase dramatically.  And patients and our national economy would suffer. 

If there is a social problem, it is that we are underutilizing drugs for most chronic conditions.  But in most cases, more third-party insurance is not the answer.  Rather, we need more self-insurance (through HSA’s, for example) so that people can directly manage their own health care budgets.

Finally, the best thing I have read on the economics of drugs is (surprisingly) something I wrote:here.

The industry has earned public mistrust due to a series of missteps that put profit over public health. TV advertising for certain drugs is so ubiquitous that many people assume the industry has unlimited marketing resources. Pharmaceutical payments to physicians and even disease groups have cast suspicion over the independent judgment of doctors and advocates. Efforts to quash or delay generic competition continue to be exposed. Yet the quality of scientists who are developing new medicines for these same companies is world-class.

The new area for drug policy is biologic drugs, which are often so expensive as to be frightening. Yet it’s clear that this is the future for drugs powerful enough to give new hope to millions of Americans. There is widespread agreement that we need an authorized path for generic biologics to be developed, yet the industry proposes an exclusion period so long as to preclude the practical likelihood of generic alternatives benefiting those who need them.

Balancing these considerations requires multi-dimensional changes in policy. In my view, we need new policies to address pricing, marketing, safety, and the exercise of disproportionate power in the health delivery system. The system is out of balance today.

The “$80b commitment” the industry recently made toward health reform is a modest but helpful first step. Although all the specifics are still unclear, the agreement would consist of both a $30b discount program for Medicare beneficiaries and a $50b commitment to help fund the public costs of health reform. Seniors in the “donut hole” would receive a 50% discount off of negotiated prices for brand name drugs at the point of sale, saving them billions of dollars. Individual beneficiaries could save up to $1700/year as a result. More importantly, many who today discontinue taking their drugs due to the coverage gap in the Part D benefit will be able to continue, although they will still face heavy cost-sharing. We need to continue efforts to completely eliminate the coverage gap given the importance of prescription drugs to maintaining health. Those under 65 will not face any donut holes, and neither should seniors or those with disabilities.

Proposals for a public plan option raise the opportunity for reform. A public plan could rely on the Secretary to negotiate prices, and do so transparently. Drugs that achieve much better results than those already on the market should be rewarded, those that achieve only marginal improvements less so.

In addition, comparative effectiveness studies, linked to aggressive post-market surveillance, should yield much better guidance about the safety and efficacy of drugs for different classes of patients. Most health costs are for chronic conditions, with patients typically taking several drugs in combination. Electronic records can correlate such consumption to side effects. New drugs should not be directly marketed to consumers until they have been thoroughly monitored post approval for safety among a wide range of users and conditions.

Drug policy today stands at a crossroads. The industry, consumers, and government have a huge collective stake in rebalancing policy to achieve better outcomes at affordable costs, and in ways that continue to encourage innovation through investments in research and development.