In December 1992, the FDA approved a new cancer drug called Taxol. The active ingredient was paclitaxel, a toxic chemical taken from the bark of the Oregon yew tree. Hailed as a treatment for metastasized tumors – the cancer had already spread – Bristol-Meyers Squib proudly announced that the pill reduced tumor size by at least one half in 30 percent of patients. For those without hope, the pill offered a last chance.
But Taxol’s surprising effectiveness wasn’t what made headlines. Instead, it quickly gained a reputation as the most expensive drug ever sold. Bristol-Meyers Squibb set a wholesale price of $986 per dose, with each patient expected to undergo four to five doses per year. Newspaper editorials attacked the company for profiting off the desperation of patients; Congress held hearings, and called pharmaceutical executives to testify. It was the most promising cancer drug ever invented, and it was a PR fiasco.
Prospective patients didn’t care about the PR or the price. By 1997, Taxol was one of Bristol-Meyers Squibb most successful and profitable medicines, with yearly sales exceeding $1.2 billion. What began as a last ditch treatment for metastasized ovarian cancer was now being used to treat everything from leukemia to breast tumors. When the patent on Taxol expired in 2000, the market was quickly flooded with generics, and the price per dose dropped to $150. Sales of paclitaxel continued to rise.
This is the typical story of medical innovation: a new idea leads to a temporary monopoly (and high profits) which eventually yield to competition and lower prices.
But our story doesn’t end here. In January 2005, another version of paclitaxel hit the market. This drug, named Abraxane, had been slightly reformulated, so that the active ingredient was mixed in with albumin (a protein found in human blood), instead of the more common mixture of castor oil and alcohol. Initial studies were promising: compared to Taxol, Abraxane caused a slight decrease in the growth of tumors. Then the bad news arrived: roughly 75 percent of Abraxane patients died within two years, which was statistically identical to Taxol patients. Furthermore, Abraxane didn’t cause a reduction in side-effects. As an independent review in the Annals of Oncology put it, Abraxane is just “old wine in a new bottle”.
If you were pricing Abraxane for the cancer drug market, it might make sense to charge what the generics charge ($150 a dose), since the two drugs are medically equivalent. After all, neither pill makes you more likely to survive. But that isn’t what Abraxis BioScience, the company that manufactures Abraxane, decided to do. Instead of competing with the generics, they priced themselves right out of the market, and charged $4,200 a dose, or approximately 28 times what a typical dose of paclitaxel costs.
But surely nobody bought this overpriced drug, right? Wrong. After just a year on the market, Abraxane was wracking up over $200 million in sales. By 2010, Abraxis BioScience expects the drug to have annual sales over $1 billion. An exorbitant price has led to a skyrocketing demand. Cancer patients want it because it costs more.
Why has Abraxane been so successful? Well, it does seem to reduce some side-effects. [Note: see expert comments below. Abraxane is also easier to deliver to patients] But there’s another reason Abraxane has been so popular: patients naturally assume that the more expensive drug is more effective. When comparing products, consumers believe that you get what you pay for, and that a pill that costs $4,200 per dose must be superior to its generic relatives. In other words, our decisions are shaped by our expectations, and even when we have access to data which clearly dismantles our expectations (Abraxane isn’t more effective than generic Taxol), we still choose the most expensive possible cancer drug because we assume it must be better.
This phenomenon isn’t limited to cancer patients, or to people in desperate situations. (If you’re life hangs in the balance, then financial considerations are clearly secondary.) I bring up the strange story of Abraxane because there’s recently been a surfeit of news about other overpriced medical procedures that are running up our health care costs.
Just look at drug coated heart stents. According to a recent study, they are actually be less effective than older treatments. David Leonhardt, writing in the Times, explored why, if this cardiology procedure isn’t good for patients, it’s still so widely practiced. (Apparently, up to 20 percent of drug-coated stents are implanted “for little reason”.) The answer, of course, is simple: money.
Medicare typically pays $12,000 to $15,000 for a coated stent procedure, according to Thomas Gunderson of Piper Jaffray. Angioplasty and stenting have accounted for almost 10 percent of the increase in Medicare spending since the mid-1990s, Jonathan S. Skinner, a Dartmouth economist, estimates.
Dr. David D. Waters, a cardiologist at the University of California, San Francisco, said one study found the angioplasty rate to be twice as high among a group of American patients as it was among a group of Canadians. But the Americans didn’t have better survival rates and had only somewhat less angina.
Economic incentives for doctors (including their paychecks and their fear of lawsuits) to choose the most aggressive treatment certainly play a big role. At Kaiser, where doctors tend to be paid a set salary regardless of which procedures they do, angioplasty rates are lower.
As I’ve lamented before, there are no easy answers here. Part of the problem is that people demand expensive care. They read about these newfangled drug-coated stents and insist that they get one, just as they insist on taking the most expensive possible cancer drug, or on getting a prescription for antibiotics when they just have a cold. Doctors are perfectly willing to acede to this patient pressure, especially when it pads their wallet. Empirical evidence is quietly ignored.
So what should we do? I can’t think of many good solutions. And I hate to sound like a socialist, but examples like this strongly suggest that our health care system is incapable of acting like an efficient market. You might buy the cheapest cereal, or comparison shop for your new computer, but you sure as hell aren’t going to pinch pennies when it comes to open heart surgery. You’ll go with what you think is the best possible alternative, and that’s often the most expensive possible alternative. (It’s an innate bias: we assume that you get what you pay for, even when it comes to medical care.) Doctors know this, and have a perverse incentive to raise their prices to appear more competitive. In other words, nobody will visit the doctor who runs a discount surgery outlet, or accept anything but the most expensive cancer pill. The system is rigged so that patients make bad medical decisions, and any market is only as good as its individual decision-makers. The end result is a broken health care system, subject to some serious inflationary pressures.
I don’t have any answers on how to fix this mess. I just know that we need to try something completely new. Any suggestions?
PS. What do you guys think of this? It’s certainly a bold idea, with zero chance of actually being passed by Congress, but I’m not still sure it will do enough to lower costs, which are the real problem.
PPS. Sorry for such a long post . . .
[Note: In the original post, I mistakenly referred to Abraxane as a pill. It is, of course, not a pill.]