Choosing A $2,000 Drug Over A $50 Alternative That Works Just As Well

Thanks to current patent and drug regulation laws, we're paying up to $2,000 for a drug when there's a drug that does the same thing for orders of magnitude less.

Doug Mataconis · · 49 comments

The Washington Post reports on two drugs that are both equally effective in dealing with a serious problem afflicting the sight of elderly Americans, with the only difference being their price, and why doctors are more likely to prescribe the one that costs 40 times more:

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. “Genentech continues to maintain that Lucentis is the most appropriate medicine,” the company said in a statement, adding that it costs “significantly” more to make and is tailored for use in the eye. The drug “has made an immense impact.” Many ophthalmologists, however, are skeptical that it provides any added value over the cheaper alternative. “Lucentis is Avastin — it’s the same damn molecule with a few cosmetic changes,” said J. Gregory Rosenthal, a Toledo ophthalmologist who, outraged by the price, co-founded a group called Physicians for Clinical Responsibility to protest its use. “Yet Americans are paying a billion dollars every year for no good reason — unless you count making Genentech rich.”

Genentech, of course, will argue that there are other benefits:

“Genentech continues to maintain that Lucentis is the most appropriate medicine,” the company said in a statement, adding that it costs “significantly” more to make and is tailored for use in the eye. The drug “has made an immense impact.” Many ophthalmologists, however, are skeptical that it provides any added value over the cheaper alternative. “Lucentis is Avastin — it’s the same damn molecule with a few cosmetic changes,” said J. Gregory Rosenthal, a Toledo ophthalmologist who, outraged by the price, co-founded a group called Physicians for Clinical Responsibility to protest its use. “Yet Americans are paying a billion dollars every year for no good reason — unless you count making Genentech rich.” The story of Genentech’s two drugs, Lucentis and Avastin, began with a scientific marvel — a breakthrough in biology that, thanks to the vast budgets of U.S. entitlement programs, has produced enormous financial returns. Those profits have yielded benefits. By paying for such drugs without regard to cost, the Medicare system has helped stimulate investment in medical research that contributes to the development of more lifesaving technologies.

There’s certainly no doubt that pharmaceutical research costs vast amounts of money, that medical science in the abstract and patient care specifically have both benefited greatly from the new drugs that have been developed by the industry over the past several decades, and that there is economic logic in providing these drug companies with patent protection for a reasonable period of time to allow them to earn back the cost of investment in new medications as well as provide the funding that they need to conduct the research to develop new drugs. It is, you might say, something of a virtuous cycle that benefits both present and future patients and any argument aimed at disrupting it ought to be careful in what it proposes. There’s a reason why the U.S. is the home of most of the breakthrough pharmaceutical products of the past half century, and we’d be foolish to mess with the system so much to the point that we kill the goose that lays the golden eggs.

Taking all that into account, though, there’s no denying that there are flaws. Thanks to rebates and other financial arrangements, doctors are often under financial pressure to prescribe one drug over a cheaper drug that may be just as effective, or to prescribe a brand name drug when far less expensive generic brands of the same medication are available. Similar incentives seem to be created by the Medicare reimbursements paid to doctors which, as the article quoted above notes, is based in part on the cost of the medication provides, a policy which seemingly paradoxically gives physicians the incentive to over-prescribe and to prescribe a more expensive alternative when a cheaper drug would be equally effective. To some extent, the review process that third-party insurance companies provide can act on a check on the worst of these practices but quite often it does not, or patients simply insist on being given the specific drug their doctor prescribed even if it means paying more out of pocket otherwise. In the specific case of Lucentis and Avastin, there’s more at work because the company that has developed both drugs seems to be specifically aimed at avoiding the substitution of the cheaper alternative:

[W]hile Genentech has aggressively marketed the more expensive drug and sought to restrict the use of the cheaper one, critics say, Medicare has been powerless to do anything but pay up. That’s because over the past seven years, despite pleas from the Food and Drug Administration and doctors groups, Genentech has maintained the barriers that make it harder for doctors to use the cheaper drug. Avastin was not originally intended for use in the eye, and the company has refused encouragement from the FDA to seek official approval for using it to treat eye ailments, according to unpublished internal FDA documents. This forces doctors to use it “off-

label,” or in ways not specified on the medicine’s label. The company also packages the drug, which was approved for cancer in 2004, in doses far too big for use in ophthalmology, meaning that the drugs must be repackaged by other companies for use in the eye, raising the risk of contamination. Genentech has argued that Avastin may pose a greater danger of severe side effects than does Lucentis, although independent scientists say such worries are unsupported by the six trials that have been conducted. In a statement, the company said that it has not sought FDA approval of the cheaper drug for use in the eye because it has already developed one drug for the ailment known as wet age-related macular degeneration, or wet AMD. “Genentech continues to maintain that Lucentis is the most appropriate medicine for wet AMD as supported by clinical and other scientific data,” the statement said. “We specifically designed Lucentis for use in the eye and to clear quickly from the bloodstream after leaving the eye to potentially minimize side effects,” the statement said. “The two medicines were designed for different purposes and, we believe, may have different systemic and ocular safety profiles when used in the eye.”

Both drugs apparently remain under patent protection, so the alternative of some other company manufacturing Avastin and selling it in a manner better suited to use in ophthalmology is not presently an option. Similarly, it doesn’t appear that the FDA has the authority to authorize a drug like Avastin for off-label use without an application from the manufacturer, and even if it did it certainly doesn’t have the authority to force Genentech to sell the drug in a manner that can be used in ophthalmology. Similarly, the Medicare program, which quite likely bears the largest burden when it comes to the cost differences between these two drugs given the fact that wet AMD is most common in people who are old enough to be on Medicare, doesn’t have much authority in these situations:

[I]n 2012, the Medicare program and its beneficiaries spent $1.2 billion on Lucentis, according to The Post’s analysis of Medicare data. Medicare officials said they have no choice but to pay the bill when a doctor prefers to use Lucentis. “We do not have the authority to dictate treatment based on cost,” Tami Holzman, a spokeswoman for the Centers for Medicare and Medicaid Services, said in a statement. “Under current law, Medicare must cover treatment that is deemed reasonable and medically necessary by a physician or other provider.”

On some level, this is a policy that makes sense. The idea of a centralized government authority overriding medical decisions of thousands of physicians across the country is somewhat disquieting to say the least. Nonetheless, it strikes me that there are some reforms that could be implemented rather easily that wouldn’t go that far. The idea of doctors receiving “rebates” — which in any other line of work would be called kickbacks — for prescribing certain drugs would strike me that comes pretty close to being a breach of medical ethics if not anti-trust laws. While it would be next to impossible to police every way in which pharmaceutical companies “grease the skids” with physicians, some of the most egregious examples can certainly be dealt with if the will existed. After all, the object is supposed to be for the physician to be prescribing the medically appropriate drug, not the one he or she may have a financial interest in prescribing.

Another potential reform would be far more difficult to accomplish. As I said above, nobody that I’m aware of disagrees with the idea that we all benefit significantly from the pharmaceutical industry and that drug companies should have some protection under the patent laws that gives them the assurance that they’ll be able to earn a profit on a drug that they’ve invested millions of dollars and vast amounts of research in. Much like the rest of our patent system, though, the laws and regulation covering prescription drugs have clearly become far too biased in favor of the pharmaceutical industry. Notwithstanding the fact that drug company lobbyists on Capitol Hill are going to object, it’s long past time to take a look at those laws and reform the balance between protections for innovators and encouragement of free market exploitation of new information in a manner that is beneficial for everyone. The drug companies would kick and scream about it no doubt, but when it leads to perverse results like those that have arisen with Avastin and Lucentis then something is clearly wrong.