The cost of healthcare continues to rise year after year, often outpacing increases in salaries and inflation.

Doctors complain that their reimbursements for actual patient care are declining, yet private insurance carriers continue to increase premiums and many workers pay an ever-growing percentage of these costs.

Over the next few weeks, I intend to look at selected issues in healthcare to explore the reasons why medical costs are rising. Some of the causes are related to collective advances in technology, including medications, which is the focus for today.

Medications that heal us, make us feel better and (hopefully) live longer, come from a variety of sources.

Some medicines originate from natural sources, such as plants and microorganisms. The Foxglove plant contains digoxin, which was discovered as a remedy for heart failure in the 18th century, is still used to this day. Rapamycin, which is used by kidney transplant patients to prevent organ rejection, was originally discovered in a bacterium from Easter Island (Rapa Nui — hence the name Rapamycin).

Most drugs today are small molecules that are synthesized in various chemical reactions. With advances in molecular biology, newer drugs are increasingly sophisticated. The “biologics” are a class of medications that are often based on human or animal proteins. Probably the oldest and most common examples are vaccines and insulin. Newer biologic medications include human enzymes, antibody proteins, or even human-mouse hybrid antibodies that target certain pathophysiologic processes.

These are the most complex medications — they usually require a living cell to produce them — and they are much larger than most other drugs.

Due to their complexity and production methods, a single dose can cost $2,000 to $5,000, or more. The expensive biologic medications used today are for relatively rare conditions such as leukemia, rheumatoid arthritis and rare genetic conditions.

Dr. Alan Oki, a rheumatologist in Aiea who sees patients with joint disorders, said that biologic medications have “completely changed the prognosis of bad rheumatoid arthritis.”

Before the biologics, he said, “we were struggling for a 50-percent improvement rate, and today we are seeing complete remission.”

For Fabry Disease, a genetic condition that can result in kidney and heart failure, the biologic Fabrazyme was approved 10 years ago. This biologic replaces a missing enzyme and is a life-saver for affected patients, but it must be taken for life, and it costs about $150,000 per year. The overall cost to the healthcare system is limited because Fabry Disease is so rare, only affecting 2,000 to 3,000 people nationally.

Newer biologic medications with similar prices, however, are now being developed and marketed for relatively common conditions. This potentially has huge implications on the system as a whole due to the volume. The biologic Krystexxa was recently approved for gout at a cost of about $4,000 per dose. Unlike Fabry, which affects just a few patients in Hawaii, gout may affect 10,000 to 20,000 people here. Obviously not everyone with gout will need Krystexxa, but if even 1 percent of the gout patients in Hawaii use this medication every other week, as recommended, the total cost could be in the millions.

I spoke with a patient who has failed other gout treatments, and he is desperate to try something new. His hand (pictured here) shows the ravages of severe and unsuccessfully treated gout before Krystexxa was available.

As more and more biologics are developed, the cumulative costs are expected to rise, even though the Affordable Care Act of 2010 permits the approval of biogenerics.

Deborah Juarez, an Associate Professor at the Daniel K. Inouye College of Pharmacy at UH Hilo, points out that it may be difficult for biologics to be easily copied into less expensive generics once their patents expire. This is due to the specialized manufacturing process, and the overall complexity and uniqueness of the biologic medications.

Thus there may be no price reprieve from generic alternatives even though the law allows it. Most new medications are under patent when they are developed, tested and marketed, and thus can be sold exclusively. This is the “carrot” for pharmaceutical companies that often make huge profits on successful new medications. Drug manufacturers maintain that these large margins of profit are necessary to offset the cost of development of many other drugs that never make it to market.

Eventually, the patent for a typical drug will expire allowing other companies to produce and market that same medication at far lower cost. For the patient-consumer who takes chronic medication, this is a much-awaited transition since medication costs can drop significantly. Lipitor, the cholesterol-lowering medication from Pfizer, went generic at the end of 2011—after an estimated $125 billion in sales.

How will the healthcare system address the rising costs of these new medications? Professor Juarez said, “one option for containing costs for all of the insured may involve cost-sharing for those in need of biologic drugs.” This can come in the form of higher co-pays for these specialized medications.

Generally, insurance companies place medications in different tiers based on cost. Tier 1, which has the lowest co-pay for the patient, often contains low-cost generic medications or the company has a special pricing contract with the manufacturers. Progressive tiers have higher co-pays for the patient and some even require a percentage of total cost, rather than a fixed co-pay amount.

Therefore if a hypothetical 4th-tier medication requires 20 percent co-pay and the medication was $3,000 per dose, the co-pay would be $600. This has become a barrier to many Medicare patients needing biologics for their rheumatoid arthritis according to Dr. Oki.

“They simply cannot afford the $300 to $500 monthly co-pay,” he said. “It’s a terrible situation.”

Dr. James Ireland is an internist/nephrologist on Oahu and an Assistant Clinical Professor of Medicine at the John A. Burns School of Medicine. He is the former director of the Honolulu Emergency Services Department.