Innovations for Aging: how market changes are addressing rising healthcare costs
In 1960, healthcare costs in the US were about 5% of the GDP; in 2021, that figure was closer to 18%. The US spends almost twice as much on healthcare as other wealthy countries. Some of these expenses allow us to innovate more rapidly, while others are products of legacy systems needing market disruption.
We’ve previously discussed the broad state of American healthcare. Today, we’re focused on how new innovations and market forces critically address the rising costs of prescriptions and care for seniors.
The Prescription Drug Pricing System
It’s a common lament that prescription drugs are too expensive, and it’s not clear why costs are that high. Americans, on average, spend more than any other country on prescription drugs, about $1,200 per year.
For seniors, the costs have hit particularly hard: “over the past five years, out-of-pocket costs for Medicare seniors have risen at nearly three times the rate for commercially insured consumers.”
Opening the Black Box
One of the most frustrating aspects of trying to unpack prescription drug pricing is the lack of data. In our current system, drug prices are set behind the scenes by companies called pharmacy benefit managers (PBMs).
These companies oversee drug benefits for groups like large employers, health insurers, and, critically, Medicare Part D drug plans. Their largely unseen work determines insurer drug costs, pharmacy payments, and patient access to medication, which ultimately plays a significant role in how much prescription drugs cost the consumer.
To compound the transparency problem, these companies have questionable incentives. PBM compensation is linked to drug price, meaning they earn more for approving higher-cost drugs. While they maintain that much of the compensation is passed on to the insurer to lower consumer costs; there is little data to support any real conclusion due to the lack of transparency.
Further, only three PBMs control 80% of all US prescriptions, limiting competition. “They own or are owned by insurers and have vertically consolidated their businesses to own everything and everyone between themselves and the patients, including doctors, pharmacies, group purchasing organizations, and more.”
With such entrenched vertical integration, mixed incentives, and limited data, Americans, particularly those on Medicare, see their prescription drugs getting increasingly expensive with no clear reason why.
The Market Disruption
The pricing challenges we’re facing are providing fodder for legislative and market-level change.
In addition to new legislation to ‘delink’ PBM compensation in Medicare, established market players and new entrants are switching to ‘cost plus’ prescription pricing. The cost-plus model marks up the drug by a known set proportion and then adds a fixed pharmacy fee. As a more transparent strategy, it delinks the existing perverse PBM incentives and gives consumers a clearer understanding of their real costs.
This ‘delinking’ and change in how drugs are priced across the market, and specifically within Medicare, will help us understand the actual price of our prescriptions. We hope that more data and innovation will better support all, and specifically our aging population, to afford the care they need.
Providing Care for Seniors
Prescriptions are just one facet of senior care, albeit an important one. While we all hope to age gracefully, many of us, at one time or another, will need assistance with anything from mundane house chores to dealing with specific health concerns. How this care is provided and by whom can be a significant challenge.
The Care Cost Burden
Most don’t want to be a burden to their families in old age, but the reality is that elder care is expensive. Unfortunately, the complexity and opacity that often drive costs in the prescription drug sector carries over into the care sector. Additionally, the US spends less on long-term care than its international peers, further exacerbating consumer costs.
Many adult children are faced with a choice between paying for professional care for their aging parents, which can cost more than most Americans earn in a year, or giving up formal employment to provide care themselves when possible.
Even if a family member can generally care for an elder, of those turning 65 today, about 70% will need some type of long-term care service.
The cost of professional care, like nursing homes, home health aides, assisted living, or adult day care is high and can vary widely by type of care and location. These costs often mean that those who need professional long-term care of some kind are more likely to deplete their life savings in pursuit of that care.
The Market Disruption
Major healthcare players recognize the faults in our current system and are turning to technological and systemic innovation to provide more accessible and affordable care.
Companies are using telemedicine, innovative wearables, and distributed care centers to provide better services to traditionally underserved areas and populations.
Others are investing in elder care services that provide for the whole person, not just their medical concerns. This more holistic approach often focuses on the challenges of isolation and lack of transportation that can compound and exacerbate existing health challenges, forcing seniors into more intensive care centers, which can cost significantly more and result in savings depletion.
The Future of Elder Care
The healthcare market is changing for the better. Innovation in market pricing, technology, and legislation is driving significant improvements in how we care for ourselves and our loved ones in old age.
With more data, transparency, and competition, we can hopefully reduce the cost and burden of aging.
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[i] “How Much Does The United States Spend On Healthcare?,” Peter G. Peterson Foundation, July 14, 2023, https://www.pgpf.org/blog/2023/07/why-are-americans-paying-more-for-healthcare#:~:text=In%202021%2C%20U.S.%20healthcare%20spending,only%20about%20half%20as%20much.
[ii] Nathaniel Meyersohn and Tami Luhby, “CVS will change the way it prices prescription drugs,” CNN, December 5, 2023. https://www.cnn.com/2023/12/05/investing/cvs-drug-prices/index.html
[iii] Buddy Carter and Lisa Blunt Rochester, “Emerging bipartisan path to lowering prescription drug costs reveals common ground for agreements on spending,” The Hill, December 8, 2023 https://thehill.com/opinion/congress-blog/4349879-emerging-bipartisan-path-to-lowering-prescription-drug-costs-reveals-common-ground-for-agreements-on-spending/
[iv] “Pharmacy Benefit Managers and Their Role in Drug Spending,” The Commonwealth Fund, April 22, 2019, https://www.commonwealthfund.org/publications/explainer/2019/apr/pharmacy-benefit-managers-and-their-role-drug-spending
[v] “Pharmacy Benefit Managers and Their Role in Drug Spending,” The Commonwealth Fund, April 22, 2019, https://www.commonwealthfund.org/publications/explainer/2019/apr/pharmacy-benefit-managers-and-their-role-drug-spending
[vi] Buddy Carter and Lisa Blunt Rochester, “Emerging bipartisan path to lowering prescription drug costs reveals common ground for agreements on spending,” The Hill, December 8, 2023 https://thehill.com/opinion/congress-blog/4349879-emerging-bipartisan-path-to-lowering-prescription-drug-costs-reveals-common-ground-for-agreements-on-spending/
[vii] Buddy Carter and Lisa Blunt Rochester, “Emerging bipartisan path to lowering prescription drug costs reveals common ground for agreements on spending,” The Hill, December 8, 2023 https://thehill.com/opinion/congress-blog/4349879-emerging-bipartisan-path-to-lowering-prescription-drug-costs-reveals-common-ground-for-agreements-on-spending/
[viii] David Leonhardt, “Big Profits in Caring for the Elderly,” The New York Times, December 4, 2023, https://www.nytimes.com/2023/12/04/briefing/health-care.html
[ix] Reed Abelson and Jordan Rau, “Facing Financial Ruin as Costs Soar for Elder Care,” The New York Times, November 15, 2023, https://www.nytimes.com/2023/11/14/health/long-term-care-facilities-costs.html
[x] “How Much Care Will You Need?,” LongTermCare.gov, https://acl.gov/ltc/basic-needs/how-much-care-will-you-need?itid=lk_inline_enhanced-template
[xi] Reed Abelson and Jordan Rau, “Facing Financial Ruin as Costs Soar for Elder Care,” The New York Times, November 15, 2023, https://www.nytimes.com/2023/11/14/health/long-term-care-facilities-costs.html