Medicare Costs: A Tale of Two Drugs

Philip J. Rosenfeld, a professor of ophthalmology, presented testimony before the Senate Special Committee on Aging. The title of his presentation was “A prescription for Savings: Reducing Drug Costs to Medicare.” His intention was to illustrate how drug development and good intentions on the part of Medicare administrators can lead to unintended consequences.

Rosenfeld is concerned with the disease of age-related macular degeneration (AMD), the leading cause of blindness among the elderly. The advanced stage of this disease is accompanied by “abnormal growth of blood vessels in the back of the eye that leak and bleed.” Genentech and others are credited with determining that the factors that control the growth of these blood vessels are the same that are responsible for blood vessel growth in cancers. Genentech developed two different drugs that can control this blood vessel growth: Avastin and Lucentis.

“Both drugs are derived from the same mouse monoclonal antibody developed by Genentech to block the growth factor. Avastin is a full-length form of this antibody, originally developed for colon cancer treatment, and Lucentis is a smaller piece of this antibody....which was developed to treat....AMD. Avastin is infused through an arm vein every 2 weeks, while Lucentis can be injected every month into the eye.”

Before Lucentis was approved for AMD treatment by the FDA, Rosenfeld became convinced that the earlier drug would be just as effective as Lucentis for AMD. Genentech showed no interest in such an idea. Rosenfeld proceeded to organize clinical trials of Avastin injected directly into the eye. These tests were performed before Lucentis was available and AMD sufferers had no other option. The drug proved successful and the use of Avastin became wide-spread (2005) before Lucentis became available (2006). A study published in 2011 indicated that a direct comparison between Avastin and Lucentis demonstrated equal efficacy, at least through the first year. The comparison will be continued into succeeding years.

So now we have two drugs that are effective in treating a serious condition—what’s the problem? The problem is that Avastin costs $20-$40 per dose, while Lucentis costs about $2000. This raises a number of issues.

On the part of Genentech, there is at least circumstantial evidence that it was trying to extract as much profit out of the system as possible. This has the outward appearance of being an example of a company engineering a small change in a product so that they can claim a new and improved version that will allow the charging of an excessive cost. It is not an illegal maneuver and it is quite common in the industry. We can each decide on the ethics involved.

Rosenfeld’s concern was not with Genentech, but with CMS, the outfit that administers Medicare. He provides these figures.

“During 2008, we found a total of 841,782 eye injections were performed. CMS paid $20,290,952 for the 60% given Avastin and $536,642,692 for the 40% given Lucentis. While Avastin accounted for 60% of the injection volume, it was responsible for only 3.6% of the drug payments associated with the treatment. The use of Avastin saved CMS over $800 million in 2008 alone.”

One might ask why so many doctors choose the most expensive option. There are a number of possible explanations. There is the fact of FDA approval for this application on the Lucentis side. Genetech is certainly out there marketing these doctors, and financial rewards for product use are not unknown in this industry. A New York Times article from November, 2010 made the following claim.

“Genentech has begun offering secret rebates to eye doctors as an apparent inducement to get them to use more of the company’s expensive drug Lucentis rather than a less costly alternative.”

“Under the program, which started on Oct. 1, medical practices can earn up to tens of thousands of dollars in rebates each quarter if they use a lot of Lucentis and if their usage increases from the previous quarter, according to a confidential document outlining the program that was obtained by The New York Times.”

The issue that brought Rosenfeld to Washington was to point out that CMS procedures themselves might be responsible for providing financial incentives for doctors and hospitals to choose the more expensive product.

Drugs in this category are reimbursed at the market rate plus 6%. Rosenfeld surmises that this extra 6% might have been an attempt to reimburse providers for the costs associated with purchasing the item. The net result though is to provide the equivalent of a sales commission. A doctor would receive a payment of $115 for using Lucentis, which is almost as much as the reimbursement for the injection ($125). A doctor is doubling his income by using Lucentis.

There is a similar incentive provided to hospitals. Hospitals that are designated as having a disproportionate share of indigent patients are eligible for a 20% discount on the purchase of Lucentis (about $400). It would be reimbursed for the full $2000 cost, allowing it to pocket the $400.

Neither of these two examples seems to address an existing issue in a relevant manner. If doctors have actual expenses related to purchasing and handling drugs, they should be reimbursed at the level actually incurred, not handed a 6% service charge which provides the incentive to spend as much as possible on drugs. If hospitals need assistance because they are overloaded with nonpaying customers, then address that issue directly. Don’t provide a process whereby they are encouraged to spend money on expensive drugs.