Pharmaceutical Dollar Rationing by Results

Bloomberg’s “Lilly Erbitux Cancer Drug Not Worth Price, U.S. Scientists Say” and The Wall Street Journal’s “Cost-Effectiveness of Cancer Drugs Is Questioned” report on a study published by NIH oncologist Tito Fojo and NIH bioethicist Christine Grady questioning the cost effectiveness of high cost cancer drugs. Most of the cancer drugs approved in the last 4 years cost over $20,000 without consistently extending survival.

It looks like the controversial British National Health Service (NHS) methodology for determining the value of pharmaceuticals might be crossing the Atlantic. The UK National Institute for Clinical Excellence (NICE) advises the NHS on the cost-benefit of drugs. In general, Britain has valued a “quality-adjusted life year” at £30,000.

The study’s authors cite an average survival increase of 1.2 months for Eli Lilly (LLY) and Bristol-Myers Squibb’s (BMY) Erbitux, costing $80,000 for a course of treatment. Similar results were found for Roche’s (RHHBY.PK) Avastin and Nexavar, costing $34,000. Nexavar is co-marketed with Bayer and Onyx (ONXX). Given that each treatment targets cancer differently, an effective cocktail is beyond the affordability of any health insurance plan – public or private.

Like most healthcare dilemmas, there are multiple sides to this controversy. Despite rhetoric to the contrary all sides involve rationing. The British ration on the payment side; only paying for the drugs that produced quantifiable results on a patient by patient basis. The pharmaceutical companies capitulated rather than be excluded from reimbursements. The NHS must be rebated when an expensive cancer drug does not produce results for an individual patient.

The British system is particularly effective when a high cost drug can produce extraordinary results in a small subset of patients. Given that the cost of manufacturing pharmaceuticals is a very small fraction of their selling prices; this model can very be effective for the companies as well. But the wide operating margins are not enough to convince the companies to change their business model in the US.

The US private insurance companies ration high cost drugs through co-pays and coverage caps. Biological and other high cost drug are often classified as “level 4” with little or no reimbursements. The result is that doctors must limit patient access to one high cost drug at a time without knowing if the one they picked would be effective.

This drug lottery serves no one. The patient would be better served by giving the doctor the freedom to experiment with multiple drugs either separately or in combination. The likelihood of putting the cancer in remission certainly would be greater, and more companies would have access to selling their drugs to each patient. The drug companies would have to agree to share the revenue allocated to the cocktail for each patient.

The drug companies are vigorously defending the status quo in the US. Instead of adapting their business models to “pay for performance” or shared revenue for a course of treatment, they have embarked on an elaborate public relations scheme. The companies claim that most patients don’t pay the “benchmark or average wholesale price” and besides if the patient cannot afford their medicines, the companies will help. Many patients have gone bankrupt with this kind of help. And even if the patients do not pay full price, it is often because the rest of the insurance pool chips in through high premiums.

The American method of rationing high cost drugs leads to Russian Roulette for the patients. Until sufficient genetic or diagnostic testing is available, why not make all cancer drugs available to all patients and reimburse drug companies for results? Just like one private insurer cannot give guaranteed issue policies without adverse selection, the pharmaceutical industry must act in concert to support revenue sharing.

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Comments

[logicalthought:]

I think that this is a reasonable solution, provided that when the drug works, the manufacturer will make up for the "lost volume" by getting some multiple of today's (admittedly) already-high price. Otherwise, no young biotech company will ever be able to attract the risk capital it needs to develop these things, as the process of bringing a drug from test tube to market is exceedingly expensive and has a slim chance of success.

Jul 01 07:29 AM

[Jose39:]

Who will the development of new drugs?

Jul 01 08:09 AM

[citizen1:]

This may seem a little off subject but you will see the relationship. This is so tragic for the patient. The doctor should be able to choose or mix drugs not the insurance cos or government. Private ins companies collect huge monthly premiums and then pick and choose reimbursements at different rates for different hospitals, meds, tests, etc. The problem is in the entire insurance system. Companies pick and choose the healthiest people and let the middle class elderly 60- 65, almost all with preexisting conditions, suffer most with high premiums and deductables. To 1 insurance co. people pay $1040/ month with a $1000 ded, 80/20 coverage (with diferent tiers of payments for hospitals, tests, meds, etc).. That's if you can get insurance at all. The system is broken. Illegals and poor get care for free.. Do the math for a year for that insurance. The trouble ISN'T pharmaceutical companies. Research should be subsidized by the government to lower prices since bringing 1 drug to the market can cost billions. Insurance is the real problem.

Jul 01 08:44 AM

[Steve in Gr...:]

Why should the government be involved in my healthcare decisions or my insurance decisions? The answer is they should not. In the U.K. and Canada healthcare systems and in the U.S. Medicare, government is the problem.

Jul 01 10:38 AM

[robert.b.fe...:]

NHS solution: Keep them on the waiting list until they die. Pretty simple huh? If you think health care is expensive now just wait until it's free. Should Obama care become reality I'm selling my pharma stocks and any other health care related equities.

Jul 01 11:38 AM

[ERCaptain:]

The US gov is working at a feverish pace to ensure they pass some version of socialized health care now. Controlling legislative and executive branches gives them the ability to do it if they can maintain party loyalty.
There is also the issue of timeliness. If they can push it through quickly, and without a large national debate, they can avoid the problem of all those pesky people pointing out how much their plan stinks.
The US is still the destination of choice for the world's wealthy when it comes to quality and timely care. Waiting for months for urgently needed treatment, such as occurs in the UK or Canada, is an emotional and physical nightmare. Rationed care with fewer doctors is not a program that anyone wants. But many doctors I know are looking for the exit if the goverment controls fall into place. Worse yet, many parents of bright children who have expressed an interest in becoming doctors, are instead encouraging their children to pursue other careers.
I hope we can yet find a solution that does not result in any kind of rationed care.

Jul 01 12:18 PM

[generic int...:]

So, if I go out to dinner and the experience is less than satisfactory, I should get a rebate or not be charged?

....and that risk should be shared by different providers??

.....and if I can't decide whether it was satisfactory, I could come back for my money one month or years later???

Jul 01 12:33 PM

[derryl:]

The US economy cannot afford to provide unlimited medical treatments to everybody who wants them, any more than it can afford to provide McMansions for everybody who wants a house.

In a free market medical system consumers 'ration' their consumption of health treatments by making cost-benefit decisions. First they ask themselves if the treatment will really produce the promised benefits. Then they ask themselves if those benefits are worth the cost of treatment. Then they ask themselves if their family has other higher spending priorities for that money. Then they decide whether or not to purchase the treatment.

Health treatments are an expensive component of people's and nations' budgets. The decision about how much to spend on health treatments is made in the context of competing demands for a limited amount of household or national spending money. Pharmaceutical 'rationing' is just part of everybody's 'rationing' of their spending in one area so there is more left to spend in other areas. Health treatments are most assuredly NOT free and any program--whether health insurance or government health care--that oversubsidizes individuals' health purchasing decisions will see demand for treatments and total systemic costs skyrocket beyond any economy's ability to pay. ...unless they ration health care by limiting access to the system, as Canada and many other public health care systems practice.

Jul 02 12:02 AM

[nova:]

"The study’s authors cite an average survival increase of 1.2 months for Eli Lilly (LLY) and Bristol-Myers Squibb’s (BMY) Erbitux, costing $80,000 for a course of treatment."

This statement is a total lie. Why? Let us examine the facts:
* Erbitux, added to radiation therapy in head & neck patients, increases patients overall survival (OS) by more than 25 months (it is over 2 years). For this indication, Erbitux has also been approved in England.
* In metastatic colorectal cancer (mCRC) w-Kras patients, Erbitux + chemo increases OS by ~5 months. Furthermore, good many mCRC patients (~20%+), thanks to Erbitux, are able to have a curative surgery and become cancer free.
* In lung cancer, Erbitux+chemo increase OS by ~1.8 months.
* Finally, Erbitux overall course of treatment is less than $20,000 (max of 8 injections at $2,500 each).
Note: Erbitux sale in socialistic health care EU is about to reach 1.5B euro in a few years.

Now, one might ask a question: Why do these "scientists" lie?

Jul 02 12:23 AM

[bowonwing:]

Comments by several posters bash the Canadian health care system. I think these criticisms are misplaced.

My father is Canadian and lives in Vancouver B.C., was born there and has lived most of his life there (I am US citizen born in Hawaii, living in the Bay Area, US). His experience with the Canadian health care system has been very positive (Canadians do pay for this with high taxes). The Canadian system is built on the government establishing the prices for the heath care (thus the doctors, hospitals and drug companies are fighting to have this type of system in the US- they will not make as much money).
To my fathers knowledge there is no "ration health by limiting access to the system," as one poster stated.

Every Canadian citizen has a health care card and has access to the Canadian health care system and cost are very reasonable. In the US between 25 to 30% of health care costs are due to "administration costs." To my knowledge these costs in Canada are about 50% less.

From my fathers experience, the Canadian health care system provides universal health care to all (in the US about 40 million people do not have health care). Sometimes there are waiting times for elective procedures, but generally the care level is very good and my father says he is very happy with his health care in Canada.

Jul 02 12:38 AM

[Student of ...:]

Ask your father how long he would have to wait if he needed a hip replacement. My father is an american orthopedic surgeon. He tells me his Canadian colleagues at one hospital are only allowed to perform two hip replacements a month for a whole department of orthopedics. Quite a few Canadians (an understatement of course) come to the US for medical treatment. You don't see too many Americans going to Canada for medical treatment (buying prescription drugs does not count)..


On Jul 02 12:38 AM bowonwing wrote:

> Comments by several posters bash the Canadian health care system.
> I think these criticisms are misplaced.
>
> My father is Canadian and lives in Vancouver B.C., was born there
> and has lived most of his life there (I am US citizen born in Hawaii,
> living in the Bay Area, US). His experience with the Canadian health
> care system has been very positive (Canadians do pay for this with
> high taxes). The Canadian system is built on the government establishing
> the prices for the heath care (thus the doctors, hospitals and drug
> companies are fighting to have this type of system in the US- they
> will not make as much money).
> To my fathers knowledge there is no "ration health by limiting access
> to the system," as one poster stated.
>
> Every Canadian citizen has a health care card and has access to the
> Canadian health care system and cost are very reasonable. In the
> US between 25 to 30% of health care costs are due to "administration
> costs." To my knowledge these costs in Canada are about 50% less.
>
>
> From my fathers experience, the Canadian health care system provides
> universal health care to all (in the US about 40 million people do
> not have health care). Sometimes there are waiting times for elective
> procedures, but generally the care level is very good and my father
> says he is very happy with his health care in Canada.

Jul 02 02:39 AM

[bowonwing:]

Which Canadian hospital are you referring too and in what city?

If you are making statements like this you better back them up with the facts.

This is the classic response of US doctors (and hospitals and drug companies), screaming of the horrors of the Canadian health care system. It is BS!

The Canadian Universal health care system works and has been independently rated as one of the best health care systems in the world (there was a PBS special on health care last year, 2008).

I ask you to choose between in the US 40+ million without health care (and tens of millions more under-insured) and the Canadian universal health care for all, with some wait times. I did say there are waits for elective procedures. The Canadian health care system is not perfect but it does provide health care for everyone!

Ask the 40+ million in US who do not have health care which system they would they choose? I would venture to say they would choose the Canadian type system of health care for all in the US, with the possibility of some wait times.

I know one family with two children who had to fill for bankruptcy because their mother had cancer and no health care (she died anyway), and I just heard of a woman with two kids (by C-section about $20K in US) who is pregnant again with no health care. What is she going to do?

Do you have health care? Oh, thats right your father is a doctor! of course you have health care. Wake-up!


On Jul 02 02:39 AM Student of History wrote:

> Ask your father how long he would have to wait if he needed a hip
> replacement. My father is an american orthopedic surgeon. He tells
> me his Canadian colleagues at one hospital are only allowed to perform
> two hip replacements a month for a whole department of orthopedics.
> Quite a few Canadians (an understatement of course) come to the US
> for medical treatment. You don't see too many Americans going to
> Canada for medical treatment (buying prescription drugs does not
> count)..

Jul 02 04:46 PM

[Student of ...:]

"Do you have health care? Oh, thats right your father is a doctor! of course you have health care. Wake-up!"

I haven't spoken to my father in years. You write like a fool.

I have health insurance for two reasons. Number one, I work my ass off and I have a very frugal lifestyle. Number two. I've made sacrifices in terms of my wages in order to obtain and keep my half decent private health insurance. I beileve this is what you socialists call "job lock". My response to that is this; total compensation=salary+be... not salary alone. You get what you pay for... I'd much rather have to deal with "job lock" instead of rationed government healthcare.

Perhaps you should consider moving to Canada?


On Jul 02 04:46 PM bowonwing wrote:

> Which Canadian hospital are you referring too and in what city?
>
>
> If you are making statements like this you better back them up with
> the facts.
>
> This is the classic response of US doctors (and hospitals and drug
> companies), screaming of the horrors of the Canadian health care
> system. It is BS!
>
> The Canadian Universal health care system works and has been independently
> rated as one of the best health care systems in the world (there
> was a PBS special on health care last year, 2008).
>
> I ask you to choose between in the US 40+ million without health
> care (and tens of millions more under-insured) and the Canadian universal
> health care for all, with some wait times. I did say there are waits
> for elective procedures. The Canadian health care system is not perfect
> but it does provide health care for everyone!
>
> Ask the 40+ million in US who do not have health care which system
> they would they choose? I would venture to say they would choose
> the Canadian type system of health care for all in the US, with the
> possibility of some wait times.
>
> I know one family with two children who had to fill for bankruptcy
> because their mother had cancer and no health care (she died anyway),
> and I just heard of a woman with two kids (by C-section about $20K
> in US) who is pregnant again with no health care. What is she going
> to do?
>
> Do you have health care? Oh, thats right your father is a doctor!
> of course you have health care. Wake-up!

Aug 14 02:39 AM

[bowonwing:]

You wrote this blow-hard: "My father is an american orthopedic surgeon. He tells me his Canadian colleagues at one hospital are only allowed to perform two hip replacements a month for a whole department of orthopedics."

Now your telling me you haven't talked to your father in years and you're telling me I write like a fool??

And you still didn't answer my question? Which Canadian hospital? Big guy.

Maybe you should talk to your father once in while and clear your confused head. Bow- out.


On Aug 14 02:39 AM Student of History wrote:

> "Do you have health care? Oh, thats right your father is a doctor!
> of course you have health care. Wake-up!"
>
> I haven't spoken to my father in years. You write like a fool.<br/>
>
> I have health insurance for two reasons. Number one, I work my ass
> off and I have a very frugal lifestyle. Number two. I've made sacrifices
> in terms of my wages in order to obtain and keep my half decent private
> health insurance. I beileve this is what you socialists call "job
> lock". My response to that is this; total compensation=salary+be...
> not salary alone. You get what you pay for... I'd much rather have
> to deal with "job lock" instead of rationed government healthcare.
>
>
> Perhaps you should consider moving to Canada?

Oct 29 10:25 PM