Cost explosion in the healthcare system

06.06.2023 11:32

The development of pharmaceutical spending in Germany has only known one direction for years: upwards. It is still largely unclear who the main causes of the cost explosion are and also how the additional expenditure will develop in the long term. A new study by the WHU – Otto Beisheim School of Management and Aalen University has now addressed precisely these questions. The various projections for the year 2060 show that drug expenditure is expected to continue to rise sharply and that politicians should act quickly to contain the cost increase.

The costs of treatments and medicines in the healthcare system have been rising rapidly in Germany and other industrialized nations for years. The reasons for this are different: people are getting older, medical progress is making more complex treatment methods possible and risk groups need numerous expensive and new medications. All of these factors are cost drivers, but the expenses are distributed extremely unevenly depending on the patient and risk group.

The individual expenses per patient vary greatly

The statutory health insurance figures for 2022 show that the different sources of cost increases in the healthcare system have different degrees of importance. For example, spending on medicines increased by 5.5 % per capita, which caused by far the largest jump in costs. But per capita expenditure on inpatient treatment (3.2 %), dental treatment (2.9 %) and outpatient treatment (1.9 %) also caused cost increases.
However, the health insurance numbers also show that patients' individual health expenditures vary extremely. The percentage of insured people who incur the highest costs will spend 20 % of health care resources, and more than half will be spent on the most expensive 10 %. If you only look at spending on medication, the gap is even wider - and it keeps widening. To date, however, there are hardly any studies that focus on the development of medium and long-term pharmaceutical expenditure.

What drives drug spending

It is of interest to policymakers and society to understand how medication use develops in different patient groups. Focusing solely on the gender and age of patients when analyzing the cost increases in pharmaceutical expenditure is not enough. What is particularly relevant, however, is the small group of high-risk patients in whom the increasing expenditure is concentrated.

Even the modeling of a basic scenario, which assumes consistent growth in drug spending in the coming years, assumes a cost increase of 40 % between 2019 and 2060. Other scenarios are even more pessimistic. If the previous spending development for high-risk patients is taken into account in the modeling, the 40 percent increase in spending on medication will be achieved as early as 2040, and by 2060 drug spending could more than double. If one assumes a scenario in which the aging process becomes particularly expensive, i.e. people in the high-risk group in particular become steadily older, per capita pharmaceutical expenditure could even increase by up to 150 % by 2060.
Whichever of the projections are correct, drug spending will continue to rise dramatically in the coming decades. While other demographic factors are negligible, the future cost increase depends primarily on the development of medication costs in the various risk groups and on whether the high-risk groups also benefit from increasing life expectancy.

How can politicians keep drug spending under control?

Since health spending in OECD countries is now increasing annually faster than the respective gross domestic product, politicians should know where the cost increase comes from - from increased drug spending for high-risk groups in which particularly expensive new drugs (particularly in cancer therapy) are used. Therefore, policymakers should reconsider the current favorable evaluation of new drugs for rare diseases and generous reimbursement to keep healthcare costs under control. It is advisable to regulate the reimbursement of newly approved drugs in the high-priced segment at a European level and thus make them cheaper. In order to properly assess drugs when pricing them, their actual benefits on patients' life expectancy and quality of life should be more rigorously examined.