Doctors vs. Drug Companies: Pharma is Winning -- So Far

Earlier this week, the WSJ noted that oncologists are getting squeezed on the cost of expensive cancer drugs. Although the story features the usual anecdotes of doctors whose practices are in debt or who are shunting patients off to hospitals for treatment in order to save money, it’s still hard to feel too sorry for them, because until recently cancer specialists were able to make a killing off these very same drugs.

What changed wasn’t so much the cost of the drugs as the reimbursement offered by Medicare and insurers. Together with the general unraveling of the health-insurance system, where plans now saddle many patients with copayments of 20 percent or more on drugs that can cost $100,000 a year, the reimbursement cut has forced both oncologists and patients to think a lot more seriously about the cost of treatment in the context of its expected benefit.

It’s about time. Drug prices have been largely impervious to gravity for at least the last decade, mostly because no one in the system ever had to make a cost-benefit calculation — which, in turn, largely negated the need for any sort of price competition between drug makers. Pharmas and biotechs felt free to price their drugs at whatever level they thought Medicare and private insurers would agree to pay. Medicare policy remained generous because not too many people were using the most expensive treatments, and following the managed-care debacle of the mid-1990s, private insurers weren’t eager to deny patients access to the latest technology. Patients were buffered by generous insurance plans, and if they did face high copayments, many flush-with-cash oncologists would simply eat them rather than pass them along to patients.

Now that high prices are finally impacting a group that’s wealthy and politically connected — this would be the oncologists themselves, not the patients — the real question is whether market or government pressure will end the high-priced drug party for biotech and pharma companies as well. The answer is most likely yes, although it may still take a while.

A few companies have already taken steps toward moderating the cost of their drugs. Genentech, for instance, caps the cost for a year’s supply of its drug Avastin at $55,000 for people with incomes less than $100,000 and, like most drugmakers, has programs ostensibly designed to provide free supplies of the drug to the less fortunate. (Although Genentech told the WSJ that it’s made that program easier for patients and doctors to navigate, it doesn’t even list the eligibility criteria on the patient portion of its Web site, although the section for “health care professionals” notes that individuals must have household income of less than $100,000 to apply.)

The high cost of many drugs — particularly cancer treatments — is also focusing new attention on exactly how effective they are. Avastin, for instance, appeared to extend life for half of colon-cancer patients by four or more months in its first successful clinical trial, but it’s been much less effective when used with newer chemotherapy-drug combinations, as the NYT pointed out over the weekend.

Limited effectiveness plus difficulty paying the drug’s high price equals trouble. Over at Seeking Alpha, Michael Steinberg bluntly declares that Avastin’s pricing is “unsustainable” — something that might easily be said about a number of newer biotech cancer drugs:

Avastin did not pass the UK National Institute of Health and Clinical Excellence [NICE] cost-benefit screen…. Avastin works by cutting off the blood supply to tumors, but has not been effective without simultaneously administrating chemotherapy….

Avastin could extend life for a few months over chemotherapy alone. Until NICE opened the discussion on value, no cost was too high for the slightest medical improvements. Now we have the right to question whether a few months of life is worth $100K. Does having Avastin on the formulary increase insurance premiums enough to exclude a significant number of Americans from being able to afford health insurance? Secondly, do drugs costing as much as Avastin cause excessive medical underwriting by private insurers?