The Cost of New Pharmaceutical Agents

Today’s Managing Health Care Costs Indicator is $7.24

The Wall Street Journal has an article in Monday's paper entitled “Hurdles Multiply for Latest Drugs.”  It points out that there is more market pressure from health plans and governmental payers against new expensive brand name drugs. This is especially true for new agents for indications for which there are already generic medications.  WSJ points out that new agent sales (first 2 years) were $11.8 billion in 2005, but only $4.3 billion in 2010.

The article sites a new AstraZeneca medication, ticagrelor, sold in the US under the brand name Brilinta.  This is a new anticlotting agent for those at risk for blockage of coronary artery stents.  In the US, it would like be used instead of  Plavix (clopiogrel). 

Plavix is scheduled to become available generically in 2012.   In the US, it still costs over $6 per day, but in Europe generic versions are already available for 24 cents a day.   The price of Brilinta is $7.24 per day.

The New England Journal published some evidence that Brilinta is better than Plavix – a manufacturer-sponsored study that showed substantially lower rates of  rates of death.

At 12 months, the primary end point — a composite of death from vascular causes, myocardial infarction, or stroke — had occurred in 9.8% of patients receiving ticagrelor as compared with 11.7% of those receiving clopidogrel (hazard ratio, 0.84; 95% confidence interval [CI], 0.77 to 0.92; P<0.001).

As I’ve discussed before, early trials tend to show very positive results, which often fade considerably  with larger trials performed in more different settings

Here’s the conundrum.   It makes sense to approve ticagrelor based on the evidence.   It even makes sense for this medication to be 20% more expensive than brand name Plavix now– since there is some evidence that it’s better.  However, it won’t make sense in a year for this medication to be 30 times more expensive than generic clopidogrel. 

On approach is to pay for “value.”  For instance,Germany has a reference based pricing system for pharmaceuticals that would lower the price of a new agent in its second year if it proves no better than existing therapy.   However, that’s government price control – which we are loathe to accept in the US.

The US approach is to allow the pharmaceutical company to set its price, and ask health plans to control costs.  The health plans will try to negotiate lower prices for preferred formulary status, which is difficult because there is no competitor to AstraZeneca for this medication. The health plans will likely eventually either increase premiums to account for this new medication,  charge patients substantially more for this medicine, keep it off the formulary altogether, or require prior authorization for its use.

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CMS Actuary Projects Future Health Care Growth

Today’s Managing Health Care Costs Indicator is 19.8%

Click to enlarge.  Source

Health Affairs published the 2011 CMS Actuary projections of health care cost growth over the next ten years, and there are some important observations.   As the report points out, these are projections – and the model has to make a series of assumptions, many of which are dependent upon the overall economy, changes in legislation and regulation, and provider reactions to payment reform.

Some of the conclusions:

·        The total spending on health care will almost double between 2008 to 2020, from $2.4 trillion to $4.6 trillion. 

·        Health care overall will increase at a rate about 1% faster than GDP growth.

·        Health care now represents 17.6% of the GDP, and will grow to 19.8% of the GDP by 2020.

·        The portion of health care expenditures that are government payments will approach 50% during this time period, and the federal portion of direct health care expenditures will increase from 27% to 31% 

·        Medicare increases due to aging population are substantially dampened by payment cuts of the Affordable Care Act

·        Eliminating the (unimaginable) SGR 29.4% physician payment cut scheduled for January 1, 2012  would mean that the Medicare increase would jump from 1.7% (substantially below GDP growth) to 6.6% next year.  The SGR elimination is not factored into the chart above – but it has the same impact on projections with or without the Affordable Care Act.

·        The impact of the Affordable Care Act is negligible until 2014, when there is a one-year bump in medical inflation due to the large number of Americans who will receive insurance

·        There are many “winners” in the 2014 payment bump:

·        Prescription drug spending would increase by 10.7%, more than double the increase without the ACA

·        Physicians (8.9% bump, about 1/3 increase)

·        Hospitals (7.2%, just a 1% increase, since many of the newly-insured are healthier than those who were habitually uninsured.

The total cost of increase in coverage is relatively modest, although I suspect both supporters and opponents of the Affordable Care Act will cite this study to support their point of view.   The pressure to constrain future growth in health care costs will continue unabated.

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Health Cost Increases Down

Today’s Managing Health Care Costs Indicator is 1.39

The Wall Street Journal calls growth in health care expenditures “sluggish,” and the Boston Globe  and others  report on multiple hospital layoffs and threatened closings.  The head of the Mass Taxpayer’s Alliance pointed out that health care expenditure growth is way down in Massachusetts – and cautions against overly-aggressive new cost control measures that could threaten the state’s medical, biotech, and pharma segments.

Sounds like we should be declaring victory.

But not so fast. 

There is growing evidence that health care growth is tightly correlated with GDP growth.   As a country becomes richer, its health care costs go up.  In the US, the correlation is 1.39. This means that health care costs have increased exponentially by a factor of 10^1.39 consistently, whether health care costs increases appeared out of control or restrained.  

The corollary is that when a country stagnates, health care growth lags.  Further, when a country frankly loses wealth, health care spending can collapse.

Austin Frakt has pointed to new research showing the correlation between wealth changes and health care cost changes in the US.  Dylan Matthews, who blogs with Ezra Klein at the Washington Post, has posted a series of correlations for different countries   that show that the correlation between health care cost increases and increasing GDP (or aggregate national wealth) appears to hold everywhere it is studied.  Rates of health care cost increases vary – but the correlation does not.

What this means to me is that we should not assume that the current slowing of health care cost increases means that we’ve come up with the right approach to controlling health care costs.  When (if?) growth returns to the economy, we’ll likely see an uptick in health care cost inflation absent new efforts at health care cost containment.  Efforts to constrain health care cost increases are clearly swimming against a powerful economic current of tight association between GDP increase and health care cost increases. 

Frakt suggests we should focus our efforts on getting better quality or quantity of life from health care, since cost increases appear almost inexorable.

I believe we need to keep seeking approaches, whether they are in public health, provider payment, network contracting, or medical management, to be sure we’re purchasing better value in health care.  Perhaps I'm an optimist - but I think the correlation number might have been higher than 1.39 if there weren't so many impressive if imperfect efforts to 'bend the cost curve.'  We should also continue to seek cost savings when the economy is rocky, as demand for elective care is lower, and extra capacity can lead to lower unit prices.  The imperative to control health care inflation will increase when the economy is on the mend.

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