Saturday, April 26, 2008

How the U.S. Rations "Specialty Drugs"

A recent spate of articles (here, here, here, and here) on how the U.S. rations "specialty drugs" calls for more open discussion of the taboo topic of rationing.

The term "specialty drugs" is used to refer to products that are (a) very expensive, (b) typically have no less costly equivalents, (c) often biologicals, and (d) addressed to serious conditions like cancer, rheumatoid arthritis, and multiple sclerosis. The specialty drug sector is the fastest growing segment of national expenditure for pharmaceuticals.

Faced with costs that can go above $100,000 per year, many insurers have added a fourth tier in drug benefit plans. (For readers outside of the U.S. - Tier I is for generics, Tier II for preferred brand drugs, and Tier III for non-preferred brand drugs.) Typically Tiers I - III have escalating copayments, perhaps $10, $20, & $40-$50. For low income insurees, even a $10 copayment can create a significant financial barrier.

But Tier IV is another story. Insurers are increasingly charging a coinsurance (percentage of the actual cost) - up to 20% - 30%. This level of cost sharing can mean financial ruin for a family or simply no medication.

In other words - we are rationing these drugs by the patient's ability to pay.

Market rationing is an ideal system for optional purchases. Society owes no one a BMW or a high definition TV. It is ethically appropriate for us to make decisions about optional purchases in light of our own resources. It may be unfortunate if our desires are frustrated, but it is not unjust.

But market rationing of specialty drugs is simply wrong. Most people - correctly - are horrified by the idea of making access to life saving cancer drugs, or drugs that may stop the progress of a crippling form of rheumatoid arthritis, contingent on individual wealth in a country as wealthy as the United States. But that's just what we are doing.

In the presidential campaign we will soon be hearing excoriation of "bean-counting insurers" for rationing specialty drugs this way, as if insurers could simply print more money, or charge ever more to employers and individuals.

The question isn't whether we will ration - we do and will continue to do so - but whether we do it in a more or less ethical fashion.

Because national leaders typically prefer to avoid honest talk about health care and hard choices by taxing future generations through the federal debt, we have to look to the states as the most promising sources of rational health policy. States are required to balance their budgets. The opportunity cost of double digit health care cost escalation is most apparent at the state level.

Here are four of the key things we need to do:

1. Recognize that specialty drugs are only the latest bulge in health care costs, not a silo to be squeezed without looking at the health care sector in its entirety.

2. Educate ourselves, from the ground up, as through the blogosphere, and from the top down, as through state-level leadership, about the ethical imperative to ration health care. (As an example, see my recent posting about Oregon.)

3. Speak out against rationing by wealth as an unjust and un-American way of conducting the process.

4. Interpret the fact of our (hopefully temporary) decision to ration specialty drugs by wealth as a symptom of our not having developed a comprehensive, value-based approach to spending our health care dollars.

Specialty drugs represent the best and worst of the U.S. health care "system." At its best, the sector exemplifies applying cutting edge science to major human problems. At its worst, the sector exemplifies market forces run amok, with monopolistic price gouging and rationing life by wealth.


Anonymous said...

While I find rationing drugs according to wealth unjust, I think there is a larger injustice that needs addressing: how these drugs were even made in the first place. It seems to me that we need to have pharmaceutical companies thinking about the larger picture. About creating drugs that impact larger numbers of people. And while I agree with your claim that rationing drugs according to wealth is unjust, I think the larger injustice is that we are not creating drugs to impact larger percentages of the global population

Jim Sabin said...

Dear anonymous -

Thank you for your comment. I agree with much of what you say, especially that when we take a global perspective, too little of our ("our" = the US & the developed world) ingenuity and resources are devoted to improving population health. That said, at least most of the specialty drugs are targeted at serious health problems, even if those problems affect small numbers, in contrast to the tremendous resources going into developing and marketing me-too drugs for significantly less serious health concerns.



MJL said...

Dr. Sabin,
I was the one who left the first comment but I accidently checked the anonymous field. As for you second comment, I am curious as to whether you think that these diseases that pharmaceutical companies target with specialty drugs are something we should be concerned about (given the cost). What I mean is that some of these serious diseases are 'facts of life' that most of us are not willing to accept. Even if we could delay death by five years with one of these drugs the question still remains whether we ought to spend resources developing these drugs. I am not sure how to address this problem. I know you suggest a values based approach to rationing, but what does this entail? Whose values? And how do we derive rationing decisions from those values?

cs said...

Whether "rationing" of drugs by the market just, depends on one's definition of justice.

If I have earned my wealth and can use it to pay for a super-expensive drug, then I do not consider it justice for me to let some poorer person have the drug instead, paying for it with my money, even if a majority of experts decides that he needs it more. His need is not a claim on me.

MJL said...

His need claim may be yours if you earned your money as the result of an unfair advantage. In the US and I believe other places across the globe it matters for outcomes purposes what socio-economic status you are born into. So, perhaps the poor do have a need claim on your earnings.

cs said...

Jason, The truth is that I am not rich. So, if I had to spend $100,000 a year on a drug I might well have to make believe that the drug had not been invented yet.

I definitely would not claim that the Walton heirs should pay for my treatment. Their father earned that money fair and square and had the right to do what he wanted with it, including giving it to his kids. The only difference between that and stealing it, is that the government is the intermediary and the stealing is legal.

If the Walton heirs are not an example of what you consider an "unfair advantage" then maybe you're making some different point.

Of course, the notion that everyone is his brother's keeper is older even than Christianity. And, the notion that the government should enforce such brother-keepers by taking from the rich and giving to the poor is older even than Marxianism. Nothing new.

It is definitely not "American" in a historical sense, even though it might be American in today's sense. The U.S. was created as a nation of rights, with founders who feared just this type of taking from those with ability, to support those in need.

Anonymous said...

The Price of Innovation

Recently, you may have heard or read in mass media sources about the issue of pharmacy benefit managers who have clients that are prescribed biologic medications and then are required to pay a great deal of money for such meds due to the placement of these meds on their PBMs. This is due to their status on the PBM, which is known as Tier 4 status, which requires patients to pay higher co-pays for these meds. Tier 4, which also includes lifestyle meds, is determined by the PBM based on variables such as rebates and discounts from the manufacturer, which are intended to be passed on to the PBM clients. However, in some cases, the PBMs fail to do this, and have been penalized for their self-interest above patient interest as required when this activity is discovered. Regardless, because of the tier 4 status of biologics, very sick patients have to pay a great deal of money for these meds. PBMs, by the way, are pharmacy benefit managers, which were created for the pharmaceutical needs of employees normally and is a benefit along with their insurance through their employer.
First of all, biologic meds are specialty meds created differently than other typical meds, and therefore are have a unique molecular complexity that are designed for serious illnesses such as anemia or multiple sclerosis. Because of their uniqueness and exclusivity, they are very expensive- costing thousands a month for the payers. In addition, generics are not authorized to be produced as of yet for these types of meds. Their cost of these biological meds is contributed more for the complex process of their creation, as the material costs are typically less expensive than traditional molecular medications.
Biologics began to be used primarily in the 1980s and now presently make over 60 billion a year, with about 20 percent growth in this market annually. With anemia patients, oncology and dialysis clinics are targets for such meds in this category, as anemia is associated with their treatment and conditions for such diseases.
Yet, some claim that biologic meds benefit patients to only a certain degree, as they extend life of such patients, such as those on chemotherapy or dialysis, by only a few months, so the high cost of the meds is questionable and has been analyzed by others, yet no substitutes exist for biologics, so that’s why the producers of these drugs can charge so much for these products. Efficacy of these biologic meds have also been questioned as well in other treatment aspects aside from life extension.
Then there is the issue of fraud with kickbacks and overuse of some of the biologic meds used to treat anemia in dialysis clinics in particular. On a few occasions, doctors and clinics have been penalized for overusing the meds and for kickbacks in the form of discounts of the manufacturers. Ironically, the dialysis process was never patented, yet the many centers that exist have proven to be very profitable, more for some than others. An example is the situations where dialysis doctors, called nephrologists, have been accused of over-dosing patients with biologic meds to increase their income through their discount arrangement through the manufacturer of such meds, such as those biologics for anemia, and this arrangement is being investigated by regulators and encouraged by the representatives of such meds.
Presently, there are many that approach the FDA to aggressively insist that generic biologics be allowed into the market for the benefit of these critically ill patients, and this would be of great benefit for such patients, and this can be done, as far as the generic creation of these meds. And this situation illustrates one of many flaws in the U.S. Health Care System- when the sickest have to complicate their illnesses by possible financial stress, such as the case with biologic meds. Relief is needed, and should be demanded by the public. After all, why be so sick, and then be financially burdened?
“A little learning is a dangerous thing.” ---- Alexander Pope

Dan Abshear

Anonymous said...

The Innovation of Biologics (Specialty Drugs): How Is Value Defined Regarding Their Use?

Beginning in the late 1970s, biopharmaceuticals were being researched conceptually for potential creation in at that time in some academic institutions. And it was here that actual researchers in fact conducted basic research to identify new product candidates as they applied a great amount of time and effort fueled by their curiosity of what may be possible. This same protocol and passion is applied with biopharmaceuticals and the companies that create them today as it was then.
Known also as Red Biotechnology, it is believed that the first biopharmaceutical therapy ever was synthetic insulin called Humulin, which was made by Genetech in 1982, that utilized what is called rDNA technology, which also is used to produce human growth hormones. Later, the rights were sold to Eli Lilly for this insulin product. Yet Genetech was the catalyst and apex of biopharmaceutical growth then as it is now to a large degree. And such companies are truly research-driven. Today, they employ around 1000 scientists to continue their drive to research potential biologics. And with Genentech remains independent, although Roche owns a large portion of this company.
Biopharmaceuticals are distant and covert and distant relatives of big pharmaceuticals, whose medications are formed by synthetic small molecules, and are carbon based in their design. Due to the lack of innovation and creation of truly unique products in recent years utilizing this method, possibly, large pharmaceutical corporations in particular have become intimate with the innovative biopharmaceutical companies more often now than ever. In fact, large pharmaceutical companies often acquire biopharmaceutical companies that usually are comparatively very small start-up companies often. These large pharmaceutical corporations do this because, along with other reasons, biologics are in fact monopolies due to the undeveloped protocols for biosimiliars, which are the possible copy of what are the generic forms of typical branded pharmaceutical drugs. In addition, biopharmaceutical companies have historically experienced accelerated growth that has proven to be quite lucrative for them. Presently, this biologic industry is an 80 billion or so dollar per year franchise- with roughly 15 percent growth each year with this particular market, it is believed.
How do these drugs differ from typical drugs that have been made before this advent of biopharmaceuticals? Unlike the small molecule, synthetic, carbon based pharmaceuticals of yesterday, biopharmaceuticals essentially are larger and very complex modified proteins derived from living biological materials, such as manipulated cell cultures, that vary depending on what medication will be manufactured and for what disease state. In fact, it is difficult to identify the clinically active component of a biopharmaceutical drug, which is why there is no pathway for generic copies of such drugs, as it would require expensive and meticulous clinical trial processes.
One method of these creations is that a transformed host cell is developed to synthesize this protein that is altered and then inserted into a selected cell line. The master cell banks, like fingerprints, are each unique and cannot be accurately duplicated, which is why there are no generic biopharmaceuticals as of yet, as there is no known process to create them. So the altered molecules are then cultured to produce the desired protein for the eventual biopharmaceutical product. These proteins are very complex and are manufactured from living organisms and material chosen for whatever biopharmaceutical that may be desired to be created. It is difficult to identify the clinically active component of biopharmaceutical drugs. So manufacturing biopharmaceuticals clearly is a different and innovative process, and a small manufacturing change could and has raised safety issues of a particular biopharmaceutical in the developing process. Also, it takes about 5 years to manufacture a biopharmaceutical. And each class has a different method of production and alteration of life forms to create what the company intends to develop. Yet overall, their development methods are rather effective, and cost over a billion dollars to bring to market.
Over 20 biopharmaceutical drugs were approved in 2005, it has been reported, and their growth has tripled compared with what the large pharmaceuticals experienced then. Presently, over 20 biopharmaceutical products are blockbusters by definition, according to others. They are overall very effective treatments for what are viewed as very difficult diseases to manage and treat. This is due to the fact that some biologics target specific etiologies of these diseases, while limiting side effects because of the specific way in which such products work.
Unlike traditional medications that have been created in the same way for decades, biopharmaceutical companies seek through their research specific disease targets by genetic analysis and then search for a way to manipulate this target in a very specific way to provide superior treatment for such patients. Furthermore, these products are biologically synthesized and manipulated to maximize their efficacy while not crossing into a patient’s bloodstream.
There are about a dozen different classes or mechanisms of action of biopharmaceuticals that have about a half of dozen different types of uses today. Label alterations for additional disease states occur often as well due to the progressive and novel effectiveness of biopharmaceuticals. Some of these drugs are catalysts for apoptosis of tumor cells. Others may cause angiogenesis to occur to block blood supply to the tumors of cancer patients. Then some biopharmaceuticals have multiple modes of action that benefit certain patient types and their diseases greatly, as with most biopharmaceutical products, the safety and efficacy is evident and reinforced with clinical data and eventual experience with the biopharmaceutical that is chosen to be utilized. And this clinical data is of a different method as well in comparison with what are traditional medications. For example, patients in the clinical trial involving a pharmaceutical are profiled, which allows better interpretation of this clinical data on their products.
The country of Belgium provides the most biotech products to the biopharmaceutical companies in the United States, and the U.S. leads the world in regards to biopharmaceutical product creation- with more than 70 percent of both revenues and research and development expenditures in this country. Canada is ranked number two in this area, others have said.
And with the government health care programs who are the largest U.S. payers for pharmaceuticals, Medicare pays 80 percent of the cost of biopharmaceuticals, as many are administered in the doctor’s office, and Medicare part B covers the cost in large part for biologics.
One issue with biologics is overuse or inappropriate utilization of these therapies, and biopharmaceutical companies are not exempt from federal prescription regulation that exists presently. Amgen, who makes an anemia biologic called Neupogen, recently had to pay a settlement as well as JNJ, who makes an identical drug called Procrit, for rebates and incentives both companies were giving to the users of their products, which were very lucrative benefits, and this resulted in some cases intentional overdosing their patients with these biologics at unreasonable and unnecessary levels, it has been reported. The doctors targeted with these biologics by the makers of these agents are nephrologists and oncologists, as anemia is often seen in their practices for various reasons.
Another controversy involving biopharmaceuticals is that, while they overall are efficacious and safe, the typical cost of biopharmaceuticals is rather unbelievable, as this cost may approach tens of thousands of dollars per month for some of these biologics. Furthermore, with cancer drugs, they are used together with chemotherapy for their treatment regimens in many treatment centers, so the quality of life comes into question if one considers the devastating side effects of chemo treatment. Another criticism of biopharmaceuticals is that, with cancer patients in particular, they normally provide an extension of their life of only a few months. So there is a debate as to whether the value of biologics justifies their cost.
Several years ago, I heard a presentation from Roy Vagelos, former CEO of Merck Pharmaceuticals, and heard him as he spoke to others at Washington University in St. Louis about his views on both the pharmaceutical and biologic industries. And during his presentation, he stated something similar regarding the cost of biopharmaceuticals and asked as well about whether or not the value related to the cost of biopharmaceuticals is truly clinically beneficial for such a brief life extension of cancer patients in particular, for the most part. I happen to concur with his premise.
So there are apparent controversies associated with these unique paradigms and innovations. Yet there are only a few biopharmaceuticals out of many available with debatable benefits with the high price tag. It ends up being what the market will bear for what their makers charge others. Yet the real question is the clinical evidence behind biopharmaceuticals: If a biopharmaceutical stops tumor progression without harming such patients and really extends their lifespan with efficacy that is obvious, then the benefit of such a biological is rather clear.
Another difference with biopharmaceuticals is that they are also are additionally regulated by what is called The Public Service Act, and are involved in authorizing the marketing of biopharmaceuticals.
With many biopharmaceuticals, such as those used to treat cancer, between 70and 80 percent of them are believed to be prescribed off-label, so it will be interesting on how these drugs will be used in such disease states now and in the future, and how they will be regulated as well.
So the future looks good for this industry, as biologics have tremendous marketing power along with superior therapeutic value with some of the products available, but not all of them.
Regardless of the challenges and flaws that exist with biopharmaceuticals and their makers, I’m pleased to see the results and realization of true innovation in pharmacology by taking a different path of drug development. Furthermore, I believe others should behave in a similar manner and be inspired by the biopharmaceutical companies and what they have done and continue to do for the benefit of patients regarding the issue of innovation.
“The progressive development of man is vitally dependent on invention.” --- N. Tesla
Dan Abshear (what has been written is based upon information and belief)