The Frontal Cortex

Expensive Medicine

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.]


  1. #1 The Cheerful Oncologist
    December 15, 2006

    Jonah, in my opinion Abraxane is a superior product because it can be given in a few minutes (as compared to two or three hours) and does not carry the risk of a hypersensitivity reaction (which by the way requires the patient to receive pre-medication with dexamethasone, diphenhydramine, and ranitidine).

    Abraxane is the first chemotherapy drug to be produced via nanotechnology. Unless this country renounces democracy, private property, freedom of speech, scientific research, etc. everyone better get used to seeing more and more of these products on the free market. I only wish I could continue working until I was 150 years old, just to see the miracles in cancer treatment that are going to appear over the next century. For those who are fascinated with life under a philosophy of socialism I suggest they read Part Two, Chapter Ten of Atlas Shrugged.

  2. #2 jonah
    December 15, 2006

    Thank you for your important comment and for sharing your expert opinion. I agree that those are important benefits, and if I were a patient I would certainly take them under consideration. In fact, I’m pretty sure I myself would choose Abraxane for precisely those reasons, and because I happen to have health insurance. (Although I have no idea if it would cover Abraxane.)

    I highlighted Abraxane because it demonstrates the all-too common disconnect between effective innovation and price in medicine. As you point out, Abraxane is an improved version of an existing drug, but I’m not sure the marginal improvement justifies its exorbitant price. (Especially given the conclusions of other studies that it doesn’t lengthen life span.) Instead, I think Abraxane and other like medical products take advantage of inefficiencies in our health care market. They sell themselves to the haves (who have the finest medical care in the known universe, and don’t care about the price) which means that more of the have nots can’t afford health insurance, because the system has gotten too expensive. If we are going to get serious about reducing health care costs, then I’d suggest we begin with drugs like Abraxane. None of these decisions will be easy, but I’m afraid they will be necessary.

    As for socialism…I must admit, I can’t stand Rand. But having lived in England, I have no illuisions about socialized medicine and the NHS. I know it sucks. But our system, I’m afraid, isn’t tenable long-term. Unless we get serious about containing costs, our health care system is going to require a complete overhaul, whether our politicians like it or not.

  3. #3 Geoff Brunkhorst
    December 15, 2006

    Abraxane is probably the ‘correct’ way to deliver Paclitaxel to patients… most HSR are due to the campherol, and not the drug itself. And for Severe HSR, standard Taxol is flat out life threatening, and therefore this may be the only delivery vehicle for Paclitaxel if your cancer dictatest that.

    Are you certain about costs and delivery unit? When you reference ‘pill’ you certainly are not talking about Taxol, which cannot be delivered in pill form (in fact, it’s considered a HAZMAT in hospital pharmacies). Abraxane, as well, is dosed out via IV.

    Also, the reference I see is that Abraxane is 2400/dose, which is consistent to medicare paying out at $8/mg (300ish mg is about the average dose).

    Your standard chemo session is about 60% delivering Taxol, and the other 40% the delivery of the prophylatics (dexamethasone, diphenhydramine, and ranitidine).

    Overall, Abraxane’s cost would be partially offset by
    - reduction in costs for delivering the prophylatics
    - the reduction in facility time
    - the reduction in nurse time
    - reduction in hazardous material handling costs
    coupled with the soft benefits of
    - slightly greater reductions in tumor size
    - patient safety (I’m sure deaths/1000′s will be reduced)
    - patient comfort both during and after dosing (the antihistimine and steroid ‘highs’ and ‘crashes’ will be reduced)

    Is it worth it? Maybe. Maybe not… but you can’t argue based on price per unit only.

  4. #4 Dan K.
    December 15, 2006

    These are all interesting points, and as someone who doesn’t know very much about this stuff, I find it all very interesting. thanks for bringing it up, and i certainly see that it is a very complicated issue. are doctors supposed to tell their patients that the more expensive drug doesn’t make you live longer? Is that part of their obligation? I don’t know, I’m just asking.

  5. #5 Jonah
    December 15, 2006

    Thanks for all your comments, and I especially appreciate getting such informed comments. First of all, I meant dose, not pill. (My dumb mistake, and the post is fixed.) Geoff makes several excellent points, and I agree that the expense of Abraxane might very well be compensated by savings elsewhere in the drug delivery process. I also agree that nobody knows whether Abraxane is worth the expense. More study is, of course, needed. Unfortunately, as with drug coated stents and other expensive medical procedures, the treatments become very popular in the meantime, and we depend on some big study five years hence to correct our medical misjudgment. My larger point is that if we are ever going to contain medical expenses, we have to realize that medical resources are scarce, and we should be more willing to 1) ask the difficult questions and 2) be willing to accept the brute fact that some procedures and drugs may be marginally better, or less painful, or easier to administer, but still not worth the expense.

  6. #6 MattXIV
    December 15, 2006

    I’ve noticed that a lot of sturm und drang regarding drug companies introducing new formulations for the same API tends to miss that the new formulations do address actual clinical issues. The other drug that I’ve hear a lot of this about is GSK patenting 3 Wellbutrin formulations with different amounts per pill, and it’s typically made without any mention of the fact that buproprion has a short halflife in the body and the therapeutic dosage is close to that which can cause seizures. In the first formulation, to get a 300 mg/day does, it had to be taken 3 times a day, and since it has a stimulant effect, patients couldn’t take it before bed. You can guess what the impact of that on drug compliance would be compared with the one a day 300 mg XL formulation.

    The simple solution to this is to take the generic if you’re pressed for cash and don’t have any conditions that would require the newer formulation. When I got a script for buproprion (it worked like a charm for smoking cessation, btw), my doc gave me the option of taking the generic formulation twice a day or paying the bigger copay to get the sustained release formulation that was still under patent. I took the generic and saved $10 a month on copays.

    I don’t think that most drug companies would try to market a new formulation that didn’t offer at least some clinical advantage, since their biggest targets are the formularies of private insurance and Medicare. While patients may not always be savvy consumers of drugs on their own, insurance companies aren’t exactly enthused by the prospect of paying a lot extra for a marginally better treatment, so they’d want to keep the drug off the formulary until it’s demonstrated to have a significant advantage (in fact, most of them probably want to keep it off even longer when they can get away with it).

  7. #7 hobiz2
    December 16, 2006

    As one who has followed this drug, I can state emphatically that most all of your facts are completely in error.
    It is not even a pill.
    Very unresponsible to publish such garbage.

  8. #8 Jonah
    December 16, 2006

    These are difficult issues, and there’s plenty of room for debate. But my facts are not in error. (I mistakenly referred to Abraxane as a pill when, of course, it is not.) If you are interested in my sources I suggest you read both the Annals of Oncology article linked to above, and the following NY Times article:
    Here is how the article begins:
    “CHARGING $4,200 a dose for a new version of an old cancer drug has helped make Dr. Patrick Soon-Shiong a billionaire. The drug, Abraxane, does not help patients live longer than the older treatment, though it does shrink tumors in more patients, according to clinical trials. And the old and new medicines have similar side effects.”

  9. #9 quitter
    December 16, 2006

    A better example of totally crooked patent manipulation is that of Omeprazole versus Nexium.

    Omeprazole is a combination of two enantiomers, one is active – esomeprazole, the other is not.

    After the patent ran out on Omeprazole, Astra Zeneca figured out how to purify the active enantiomer away from the inactive and somehow managed to patent it even though the studies of its efficacy showed virtually no difference whatsoever between the treatments. Further, they compared equal doses of omeprazole and esomeprazole (on other words, the esomeprazole was twice the dose of the omeprazole).

    Nexium sells for about 8x more than omeprazole over the counter.

    Now that’s crooked.

  10. #10 Scott Leifheit
    December 18, 2006

    To Jonathan Lehrer,

    I understand that you are attempting a hit piece on a very good chemotherapy for patients but it would help if you had your basic facts correct. You refer to Taxol and Abraxane as a pill. Neither is correct. They are both IV injectables. Furthermore, Abraxane is delivered through a patented process with Human Albumin and not a solvent like Taxol and Abraxane does not cause the hypersensitivity reactions that are sometimes fatal. You could have discovered this easily on both products prescribing information. Do us all a favor and tell your family member to go with the cheap inferior generic and good luck dodging the reactions. Dead people usually wish they would have saved the few dollars in the end. Advances in medicine cost big bucks to produce. You could also have researched that the average drug cost between a half billion and one billion dollars to bring to market. You do the math and see how many vials would need to be sold at $150 per dose and then fight off the countless lawyers circling the water for people willing to sue and see how that math comes out. Get it right or keep you uninformed mouth shut.

  11. #11 Jonah
    December 18, 2006

    First of all, my name is Jonah, not Jonathan. As you, and other commenters pointed out, I mistakenly referred to Abraxane as a pill. The post has been fixed.
    But I fail to see how your other points, which were made in an impolite tone, address any of my substantive points.
    As I note in my post, roughly 75 percent of Abraxane patients died within two years, which was statistically identical to Taxol patients. And it’s still not clear that Abraxane does reduce side-effects of the medication, although it is easier to administer. Before you accuse me of being uninformed, I suggest you read a few of the articles and peer-reviewed reports I linked to. We can disagree over whether or not the high price of the drug is justified by its “innovation,” or whether drugs are overpriced to begin with, but those are matters open to civil debate. In the future, if you are going to comment on this blog, I hope you are more respectful.

  12. #12 The Cheerful Oncologist
    December 19, 2006

    Jonah – excellent repsonses to your post, and a smattering of controversial (if not ungentlemanly) criticism, too!

    MattXIV (does he also respond to “Matt the 14th”?) is right when he states “The simple solution to this is to take the generic if you’re pressed for cash and don’t have any conditions that would require the newer formulation.” This is exactly how I approach it in my practice. If a patient does not have adequate insurance coverage for Abraxane I will give generic paclitaxel. As you showed us, the survival is the same no matter which formulation of paclitaxel is used.

    My preference, though, is for Abraxane. Happy Holidays!