More pressure to justify cost of cancer drugs versus benefits
A sign is displayed in front of the Genentech headquarters July 14, 2008 in South San Francisco, California. This company relied on the popularity of its cancer drug Avastin to boost profits. (Justin Sullivan, Getty Images / December 13, 2012)
In the past, pharmaceutical companies could launch a high-priced drug with little push back. But now, there is more pressure from insurers as well as doctors to justify using drugs that provide only incremental benefits. Products that offer clear-cut advances in treatment, however, still command premium prices.
The pressure on costs is likely to accelerate. The U.S. Affordable Care Act includes several provisions aimed at improving the value of healthcare, including paying hospitals for the quality of care rather than the quantity.
"It's a sign of the times," said Mark Mynhier, partner, healthcare industries advisory at PricewaterhouseCoopers PwC. "We are in fact in a significantly financially challenging environment."
Four-fifths of U.S. health insurers recently polled by PwC now require evidence of cost savings or a clear clinical benefit to include new products on their lists of covered drugs.
Doctors at New York's Memorial Sloan-Kettering Cancer Center decided in November not to use Zaltrap, a new $11,000 a month colon cancer drug, because it has a "modest" impact on survival, works no better than Avastin, a similar but cheaper competitor, and has worse side effects.
Sanofi SA, according to the hospital, responded by offering the drug to all health providers at a 50 percent discount to its wholesale price.
The Manhattan cancer center still does not include Zaltrap on its list of available drugs. Sanofi and Regeneron, which helped develop and also sells the drug, both declined to comment.
"In order to warrant the price, you are going to have to have better overall survival," said Rhonda Greenapple, chief executive at Reimbursement Intelligence, a consulting firm specializing in medical reimbursement.
Linking value to patient outcomes - mainly a drug's impact on survival - is particularly important in oncology, where treatment costs can total tens of thousands of dollars a year.
"In cases where there are co-pays, they really do effect the consumer," Mynhier said. "Patients are saying 'I can't afford to pay 10 or 20 percent of a $100,000 therapy.'"
WellPoint Inc, the second-largest U.S. health insurer by market value, said it is increasing the amount it pays for less expensive generic cancer drugs as an incentive for doctors to use them.
PROFIT OPPORTUNITY FOR DOCTORS
Infused cancer medications are first purchased by doctors, who then bill insurers for reimbursement. That is different from pills and other oral drugs for which doctors typically write a prescription filled at a pharmacy.
The offer of a 50-percent discount to Zaltrap's list price is a potential windfall for doctors. Patients, health insurers, the government or anyone else who pays healthcare bills would not see a benefit.
"At the very least it is an incentive for doctors to use the drug," said Dr Leonard Saltz, chief of Memorial Sloan-Kettering's gastrointestinal oncology service. "And I find that concerning."
He noted that rebates and discounts for cancer drugs are not uncommon, but said this is the first time he is aware of a verbal across-the-board offer for a half-price discount.
The average U.S. oncologist, according to the Journal of Oncology Practice, generated revenue of nearly $5 million last year, of which drug costs accounted for nearly $3 million.
To combat the temptation of wider profit margins, health plans in recent years began reimbursing doctors for cancer drugs based on average sales prices, rather than wholesale prices. But for a new drug such as Zaltrap, reimbursement is based on the full list price until a sales track record is established.