Price Behind the Prescription: Should Medicare Move to Cheaper Drugs?

Jul 21, 2011 7:06pm

ABC News' Amy Bingham reports:

If there are two drugs that achieve the same result but one costs $2,000 per dose and the other costs $50, should Medicare opt to cover the cheaper one and not the more expensive one?

That’s the question senators on the Special Committee on Aging aimed to answer today at a hearing on reducing prescription drug costs, costs that are expected to double between 2008 and 2019.

The drugs in question are Lucentis and Avastin. Both are produced by the same company, Genentech, and both prevent blindness caused by wet age‐related macular degeneration, the leading cause of blindness in people over 50.

Lucentis, the more expensive option, is FDA-approved and has few known side-effects. Along with one other drug, Lucentis accounts for 16 percent of the $12.5 billion Medicare Plan D spent on prescription drugs last year.

Avastin, the less-costly option, is a newer drug that has not yet been approved by the FDA. Some studies show that the drug may increase the risk of stroke and death, but no conclusive evidence has yet been produced.

Medicare covers both drugs, and despite more doctors prescribing Avastin, the “vast majority of the spending is for Lucentis,” said Jonathan Blum, the director of the Center for Medicare.

As of 2008, about 60 percent of physicians had started prescribing the “off-label” drug instead of Lucentis to save money for their patients, said Phillip Rosenfeld, a Professor of ophthalmology at the University of Miami Miller School of Medicine.

The move toward Avastin saved Medicare $800 million in 2008 alone, he said.

At a time when lawmakers are looking to slash budgets and decrease deficits, cost-saving measures like choosing low-cost drugs over similar but significantly more-expensive ones may be part of the answer to closing huge budget shortfalls in programs like Medicare and Medicaid.

“It’s not going to save the Medicare program from bankruptcy.  However, I think it’s still worth pursuing policy innovations that can save $500 million over year or $800 million per year,” said Sean Tunis, a former chief medical officer at the Centers for Medicare and Medicaid services.

Tunis argued that the price Medicare pays for a drug should be linked with the drug’s effectiveness in relation to other drug options. In the case of Lucentis and Avastin, that would mean Medicare would pay a similar price for both drugs.

But under current law, Medicare is powerless to negotiate a price structure like that. The Medicare Modernization Act of 2003 requires Medicare to pay 6 percent more than the average sale price for prescription drugs, no matter the alternatives.

The down side of opting for low-cost alternatives to high-priced, brand-name drugs is that it would decrease funding for research and development, Tunis said.

The Lucentis development program, for example, was one of the most expensive in Genentech’s history, said Anthony Adamis, the global head of ophthalmology at Genentech.

Lucentis’ clinical trials alone cost $1.1 billion, spanned 11 years and involved 7,100 patients.

Adamis said that because the vast majority of the drugs that go through clinical trials fail, the few that make it to market have to pick up the tab for all the failures.

"The price of Lucentis funds not only its own development, but also the 92 percent failure rate,” he said.

Tunis argued that with research and development grants, innovation would not suffer, but the overall cost of prescription drugs could be reduced.

“It would be a very important way for Medicare to spend less on drugs and not harm beneficiaries at all,” he said.

ABC News' Tom Shine contributed to this report.

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