Healthcare Administrative Costs are Three Times the Cost of Drugs  
[Thursday, January 9, 2020] 

The high cost of healthcare in the US is often blamed on the high cost of prescription drugs, however, a recent study showed that the administrative costs play a much bigger role in our increased medical bills. The US healthcare costs is often compared to that in Canada, with laws being created to reimport drugs from Canada into the US. However, the administrative cost component of healthcare in the US including insurers’ overheads, hospital administration, nursing home, home care, and hospice administration, and physicians’ insurance-related costs, are about $2497 per capita in the US, compared to $551 per capita in Canada, or about five times the cost for similar services in Canada. This accounts for more than 34% of the cost of our healthcare. Not only that, about 75% of the increase in the cost of healthcare is attributed to the increase in the administrative component of the total cost. On the other hand, the cost of prescription drugs accounts for about 14% of the total cost. While it is true that the new drugs approved by FDA almost always carry very high price tags, most costs decrease within a few years due to approval of generic versions of the same. Of the 450 new drugs approved by the FDA in the last 15 years, most have generic versions released within 5-10 years which are much reduced in cost compared to the generic drugs. There are about 10,000 approved prescription drugs and biologics in the US market, most of which are generic drugs. FDA’s stated ambition has been to approve more generics faster aiming to reduce the cost of healthcare, but it seems to be a false goal. While politically it is easy to paint drug industry with a broad brush of greedy corporations looking to profit from diseases, the true picture is very different. Putting in context, even if the cost of all drugs was to become zero, it would only account for about one-tenth of the total cost of healthcare. Perhaps, the debate for drug prices needs a better presentation of facts.