Cost-Shifting, Gouging and Peddling False Hopes

No doubt some of you saw the story in the New York Times reporting that health insurance companies have begun forcing very sick patients to pay as much as 20 percent to 33 percent of the cost of some of priciest drugs on the market. As a result “patients may have to spend more for a drug than they pay for their mortgages, more in some cases, than their monthly income.”

But this isn’t just a tale about insurers letting patients down. As with so many health care stories, there is more than one villain in this piece, and plenty of blame to spread around.

First, let me re-cap the background to the Times’ report. Normally, insured patients are not required to shell out a percentage of what a drug costs. Instead, they just chip in a flat co-pay of $10, $20, or $30, depending on whether the insurer lists the drug on tier 1, tier 2 or tier 3. But now insurers have invented a new category—tier 4—for hundreds of super-expensive drugs used to treat diseases like multiple sclerosis, hepatitis C and some cancers. Since some of these drugs can cost $100,000 or more a year, a 33 percent co-pay can add up to $33,300.

Insurers began this practice with the infamous Medicare Advantage plans that we wrote about on HealthBeat the other day. Eight-six percent of Medicare Advantage (MA) plans now require whopping co-pays for tier 4 drugs, so read the fine print before signing up for an MA policy. And now, tier 4 is showing up in insurance policies that people under 65 buy on their own, or through their employers. This is the fastest growing segment in private insurance, Dan Mendelson of Avalere Health, a research organization in Washington, told the Times.

By shifting costs to patients who are dying or in pain, insurers are violating the most basic principle of “insurance.” The point of insurance is to protect individuals against financial catastrophe by letting them buy into a pool that spreads the risk of getting sick: those who are lucky enough to remain healthy help pay for those who have the misfortune to be struck down by disease. It is bad enough to have MS; the victim should not also face financial ruin—especially if he thought he had insurance.

But insurers say they are sticking it to the very sick in response to “employers who are looking for ways to keep costs down.” If MS patients cover more of the cost of the drugs they need, premiums won’t climb as high. Employers explain that they just can’t afford paying for insurance that would cover $100,000 drugs—and apparently they’re comfortable letting an employee with cancer worry about how he or she is going to come up with $30,000.

Who Sets the Prices?

This raises another question: why does any drug cost $100,000 a year? The answer: because this is what pharmaceutical companies choose to charge.  If you have cancer or MS, you’re not in a position to haggle. In our health care system, drug makers are the price-makers; desperate patients are the price-takers.

Back in June of 2006 I described how big pharmaceutical companies were taking a new interest in cancer drugs. Writing on Matthew Holt’s THCB, (www.theheatlhcareblog.com), I quoted a New York Times article which pointed out that, a few years earlier, companies like Pfizer, Glaxo and Wyeth had relatively little interest in what they saw as a "niche market." While a great many people die of cancer, the disease takes so many different forms that each market is relatively small. Big Pharma would rather focus its research on diseases with a broad base. Drug-makers also tend to prefer drugs that customers can be counted on to take for many years. (There is a saying in the pharmaceutical industry: "A pill that cures is good. A pill that you take every day is better.")

Cancer patients tend to "die within months," the Times pointed out, curtailing profits.  But then, someone in the pharmaceutical industry had an epiphany: it doesn’t matter how small the market is if there is no limit to what you can charge.

“Companies have discovered that some patients will tolerate prices of tens of thousands of dollars a year,” the Times reported, “making drugs for even rare cancers into big moneymakers. Gleevec, which is used primarily for two obscure cancers—chronic myelogenous leukemia and gastrointestinal stromal tumor—had sales last year of $2.2 billion."

About nine months later, the Wall Street Journal reported that the biotech industry was leading the way in this area, producing cancer drugs that fetched astronomical sums and generated huge profit margins. Indeed, prices had skyrocketed to a point that even a prominent Wall Street analyst was worried. According to the Journal, Morgan Stanley’s Dr. Steven Harr was urging Genentech to pare what it was asking for Avastin; at that point the drug was commanding roughly $47,000 for an average 10 month course of treatment for colorectal cancer.  Harr feared that patients wouldn’t be able to afford such prices, and that if drug-makers didn’t show some restraint, the government might intervene, and begin regulating prices.

As the Journal explained, while market forces can keep prices at reasonable levels in many sectors of the economy, this is not how the market for the most important—and most expensive—health care products works. In other areas, if consumers find prices too high, they’ll postpone buying until competitors come forward with rival products, offering lower prices. But when it comes to cancer, Harr acknowledged, consumers don’t have that option: "market structure effectively provides no mechanism for price control in oncology other than companies' goodwill and tolerance for adverse publicity."

Since then, the pharmaceutical industry has demonstrated that, when it comes to “adverse publicity” it can be quite stoic.

What is the $$$$ Drug Really Worth?

One final question:  just how good are these tier 4 drugs?  One might assume that, given the price tag, they must be magic bullets. One would assume wrong. There is no relationship between the potency of the drug and the price. Price is based on what the manufacturer thinks the market will bear. And while our health care system leaves drug-makers free to charge whatever they wish, it does not insist that they prove that their products are effective. (The FDA requires only that the manufacturer test the new product against a placebo—demonstrating that it is, in effect “better than nothing.” Pharmaceutical companies are not asked to test their remedies against existing, less pricey drugs.)

Consider Procrit, a tier 4 drug which treats anemia by increasing patients’ red blood cell count. This week the Washington Drug Letter reported that two Congressmen—House Energy and Commerce Committee Chairman John Dingell and Subcommittee on Oversight and Investigations Chairman Bart Stupak —are looking into Johnson and Johnson’s marketing practices for the drug. An April 7th report from the Letter notes that the lawmakers “may have used ‘misleading’ TV and print direct-to-consumer (DTC) ads that include ‘unsubstantiated’ quality-of-life claims to market Procrit.” Why questionable?  Check out this ad:

The J&J ad recommends Procrit for cancer patients undergoing chemotherapy, promising that it will improve their quality of life. But the truth is that Procrit belongs to a class of drugs called erythropoiesis-stimulating agents (ESAs) which were first approved for the treatment of patients with chronic renal failure. 

And just last month a FDA report stated that: “Based on data provided to FDA, there is no evidence that ESAs improve quality of life or cancer outcomes” and that “mounting evidence of documented effects on survival, tumor progression, and thrombotic events [i.e. blood clots]…require a re-assessment of the net benefits” of Procrit and similar drugs. This “mounting evidence” included studies showing that drugs like Procrit increase the risk of death in cancer patients with anemia, that kidney dialysis patients tend to over-medicate, and that the drugs actually increase tumor growth and reduce survival.

For many, this is not a life-enhancing drug. The ads are selling false hopes.  This makes the fact that some patients are shelling out $400 to $600 a week to pay 20 or 30 percent of a $2,000 weekly injection all the more cruel.  For as Harvard’s Dr. Jerry Avorn points out in Powerful Medicines, these patients are paying, not only in dollars. We also should consider “the emotional cost to the cancer patient who learns that his fatigue and weakness are due to the malignancy itself and will not disappear with a $2,000 dose of Procrit as the television commercial implies.”

But it’s not just Procrit. Dingell and Stupak’s investigation extends to Neupogen, another cancer drug that the Times mentions as one of the tier 4 drugs. Neupogen increases white blood cell and immune cell counts—at a cost of $2,420 to $4,240 a month.  The bad news is that Neupogen’s manufacturer, Amgen, is under Congressional scrutiny for bundling Neupogen with other drugs—in other words, marketing Neupogen part of a drug cocktail and offering discounts to those who prescribe to multiple Amgen-made drugs. The result, says Congress, has been “excessive and dangerous off-label use” of Amgen products, according to the Washington Drug Letter.

Then there is Avonex, a multiple sclerosis (MS) drug that falls under tier 4. Though there’s no major scandal surrounding Avonex, there’s still a major problem—namely, that we don’t really know who needs it. In March, the International Herald Tribune reported that MS is “perplexing and hard to treat.” As far as we know, reports the Tribune, “up to 20 percent of patients who have a relatively mild form of MS may not need drug treatment, but it is impossible to predict who they are.” Meanwhile, prescriptions for Avonex run from $9,000 to $11,000 per year for a patient. That’s a lot to pay for a treatment you might not need. Very likely the drug should be available, free of charge, in clinical trials so that patients who want it can try it out while researchers find out more about the drug.

Meanwhile, Biogen, the manufacturer of Avonex, probably welcomes the fact that insurers are hiking co-pays—because that makes it less likely that insurers will simply drop the high-priced drug from the list of products they cover. Back in October, the insider publication Silicon Investor reported that “Avonex provides 60 percent of Biogen's revenue,” but that “some analysts predict sales of the 11-year-old medicine will start to shrink soon.” Avonex’s U.S. sales have been falling recently, and according to Silicon Investor, by next year, Avonez will be “just one in a growing portfolio of MS drugs”—many of which hail from competitors like Novartis and Genzyme Corp. In other words, Avonex needs a boost, and from the company’s point of view, off-loading costs onto consumers is better than seeing Avonex outright disappear from insurance plans. Is this a coincidence? Maybe.

Cerezyme, an enzyme replacement drug used to treat Gaucher disease (an enzyme deficiency that forms fatty deposits in organs), is another tier 4 drug that raises some serious questions. First the price is extortionate. Gaucher disease affects only 6,000 people world-wide, and so to make up for the small market Genyzme, Cerezyme’s manufacturer, “has long charged more than $300,000 a year for typical patients” the New York Times reported last month. The price turns Cerezyme into a new sort of “blockbuster” drug—one that generates $1.1 billion in annual sales for its manufacturer. The pool of treated patients is so small that Genzye can exploit “a monopoly position to charge what the market will bear to treat desperate patients with no other option.”

That, in a nutshell, is the story about the new tier 4 pricing system: desperately ill patients will wind up going broke because, under our for-profit health care system, private insurers are allowed to make decisions about what they will and won’t cover based not on the quality of the product, but on the price. For-profit insurers can do this even while taking Medicare dollars to cover Medicare patients.  The same system lets employers turn their backs on employees who most need their employer-based coverage by urging insurers to shift costs to some of their sickest employees.  And finally, unlike any other developed nation in the world, we let drug-makers gouge patients while peddling sometimes ineffective, often unproven, and almost always over-priced products.