• Choosing more expensive drugs when cheaper ones exist

    Long read in WaPo this weekend on drug choices:

    The two drugs have been declared equivalently miraculous. Tested side by side in six major trials, both prevent blindness in a common old-age affliction. Biologically, they are cousins. They’re even made by the same company.

    But one holds a clear price advantage.

    Avastin costs about $50 per injection.

    Lucentis costs about $2,000 per injection.

    Doctors choose the more expensive drug more than half a million times every year, a choice that costs the Medicare program, the largest single customer, an extra $1 billion or more annually.

    Spending that much may make little sense for a country burdened by ever-
    rising health bills, but as is often the case in American health care, there is a certain economic logic: Doctors and drugmakers profit when more-costly treatments are adopted.

    Genentech, a division of the Roche Group, makes both products but reaps far more profit when it sells the more expensive drug. Although Lucentis is about 40 times as expensive as Avastin to buy, the cost of producing the two drugs is similar, according to scientists familiar with the drugs and the industry.

    Doctors, meanwhile, may benefit when they choose the more expensive drug. Under Medicare repayment rules for drugs given by physicians, they are reimbursed for the average price of the drug plus 6 percent. That means a drug with a higher price may be easier to sell to doctors than a cheaper one. In addition, Genentech offers rebates to doctors who use large volumes of the more expensive drug.

    Kudos to Peter Whoriskey and Dan Keating for recognizing that physicians are part of the problem here. You really should go read the whole thing.


    • We’re never going to bring costs down, if we don’t manage costs. Why on earth should Medicare pay for Lucentis if Avastin works as well for 2.5% of the cost?

    • The functional equivalence ruling, which the Centers for Medicare and Medicaid Services employed in 2003 in deciding on reimbursement of Aranesp versus Procrit, should be revisited. I believe implementation of a functional equivalence policy was struck down at the time under intense pressure from the biopharmaceutical industry. Given the enormous increase in budgetary pressure on Medicare and the federal government budget generally, functional equivalence should be adopted under the current structure of only paying for “reasonable and necessary” services. It is not reasonable and necessary to pay for something that is 40 times more expensive than a treatment alternative that is therapeutically (i.e., functionally) equivalent.

    • You can’t really ding physicians too much if you give them a boneheaded incentive like paying them a percentage of the drug cost for prescribing a drug, then expecting them to use the cheaper drugs. See “On the folly of rewarding A while hoping for B” (a paper whose title rather clearly gives away the plot).

      • Greedy docs just got to be greedy!
        Greedy pharma’s just got to be greedy!
        I mean, they’re only in this for the money, right?

    • Surely a major problem is that Avastin is not licensed for eye use, only in cancers. This is a failure of regulation – Avastin should be licensed for this indication and the company made to package it so, and if they don’t want to do it another company should be given the licence.

      The irony is that cancer doses of Avastin are hugely expensive – so the tiny dose of Lucentis used in the eye makes it worth about $4 billion a kilogram, according to one estimate I’ve seen.

      The main difference in the two from what I can work out is that Avastin takes longer to clear form the body but in such small doses when used in the eye this is not significant.

    • Simply allowing patients, not Medicare, to be the payer here would pretty quickly solve this problem. Some might still prefer the $2,000 drug because of certain side-effects, but a policy that mimicked what CalPERS did with hip and knee replacement (see: would go a long way towards reducing costs. But, as I’ve been told repeatedly, health care is ‘different’ and normal economic forces don’t really work in this area…

      • The sarcasm seems a bit gratuitous, but I agree with you on this specific point. However, I’m more concerned about price transparency and individual knowledge as it applies to your overall principle.

        I also feel that if this was a normal market, a drug that is 40 times the consumer cost of a functionally equal option would never happen. I acknowledge that in retail, you will get varying prices for equal functionality based on brand and advertising. However, that would never exceed double the consumer cost.

        Also, I don’t think you solely address this from the consumer side. You have to hit the perverse incentives that make it economically beneficial for doctors to choose the more expensive option. Why would you expect a doctor to work against his/her self interest when giving options to a patient?

        • Well, I don’t really expect the doctor to work against their own self-interest (although I tend to think the whole induced-demand argument is generally overstated – in this case note that the drug is not approved for the use being touted here, and many doctors will naturally shy away from prescribing drugs for off-label use). I expect the economic self-interest of patients to serve as a check against the economic self-interest of doctors, just like they do in normal markets.

          Also, in a normal market there wouldn’t be a 3rd-party payer offering a 6% fee for administering the drug, so that perverse incentive wouldn’t exist .

        • I’d think plenty (the majority?) of doctors would find it unethical to use one drug when there’s an equivalent alternative that costs 3% of the price.

          1) Many doctors get their information on drugs from the drug companies. Who is providing comparison information between Avastin and Lucentis? My guess is Genentech, which has a huge incentive to push Lucentis.

          2) Genentech is trying to prevent Avastin being used, and I can see a doctor might not want to risk contamination by redosing Avastin, when Lucentis is available.

          3) Lastly, how would a court decide if there was a bad reaction to Avastin when Lucentis was available? While they are functionally the same drug, the doctor would be vulnerable on arguments on dosing, contamination, and off-label use when there was an on-label drug of equivalent efficacy?

          I think we should stop letting the drug companies do their own FDA approval research. Let them pay, but the FDA contract out to researchers. Then the studies would be fairer.

          • There’s tons of data that shows that (1) is totally wrong.

            • Aaron – yes there are comparative studies but isn’t a key point that Avastin does not have licensing approval for this indication?

              Obviously a lot of drugs are used off-label and without proper testing – e.g. in paediatric oncology – and there is some pressure now for health systems to carry out or obtain dosing etc data, in Europe at least.

              Surely though with such a major indication we should be doing more than just encouraging Genentech/Roche to submit an application – this can be done if a company loses exclusive rights to data or if agencies carry out their own clinical research.

              But I doubt that will happen and so we will muddle along with off-licence use and of course with competition – we now have aflibercept although that too is expensive.

      • It is different. How is the consumer, absent articles like this, even supposed to know the cheaper alternative exists?

        Remember, the “rfee market” assumes an informed market. But that almost never exists in reality, and inf act marketing is all about making sure the consumer is NOT informed, but instead misinformed.

        There is a fundamental information inequality at work here, which will NEVER be overcome, unless the consumer goes to the trouble of keeping current on pharmecuetical literature.

        “Buyer beware” sounds great…until you realize that it basically expects the buyer to know as much as the seller (doctor). Ok…a challenge, but doctors do it…so surely consumers can too….with a lot of effort. But wait…what about cars? TVs? Food? It takes years for people whose job is about each market segment, and the buyer is expected to know that much…about every market? No. Buyer beware is simply not practical in modern society.

      • Then there’s the factor that as long as the insurance company is sitting in the middle, the buyer’s wallet is insulated from price shock in the first place.

        doctor:”Here, this pill costs $2000, but you’ll be able to see again”

        Pick a response:
        -“OMG I’l l be able to see?!”
        -“That’s ok, insurance is covering it.”
        -“That’s too much doc. What else have you got?”

        Guess which one almost never gets said?

    • I assume the problem is that Congress ultimately runs Medicare, and Congress is susceptible to lobbying by big Pharma.

      If a President tried to appoint an enemy of big Pharma to head the CMS, I assume that Congress would shoot him down.

      The same grotesque overpayments have existed for years in defense spending.

      Yet in most other advanced nations, the national health boards routinely pay for generics only.

      I welcome any suggestions to cut through this rot.

    • Drug pricing is just as bad as hospital pricing. I priced the generic maintenance drug that I take. $175 for 30 tablets retail list price, $75 for 84 tablets from Canada, $18 for 30 tablets is the negotiated insurance price. If you buy the drug for the full price you pay roughly ten times what BCBS pays.

    • Just another reason to get your health care in Brazil or Mexico, where you can get boatloads of prescription drugs over-the-counter and you sure as hell don’t pay Amerikan prices.

      “First do no harm” is a big joke, and Amerikan docs should be de-frocked for abusing their fiduciary duty to their patients. In the meantime, Amerikans who participate in Amerikan medicine have to be put on notice that the insurance/medical industry does not serve patients.

    • To Jimbino:

      I would love to see doctors sued for causing financial harm to patients.

      If the AMA will not discipline its members, and if federal regulation is spineless, perhaps we do have to turn to those awful trial lawyers.

      and not for the first time.