Who’s to Blame for Rising Drug Prices?

    By Kevin E. Noonan --

Gina Kolata identifies the villain of her recent piece in The New York Times on rising drug costs in the first sentence:  "[h]ealth insurance companies" that have changed their reimbursement and prescription drug coverage for certain high-priced drugs (see "Co-Payments Soar for Drugs With High Prices").  But that didn't keep the Times from trying to use the story to further its anti-innovation agenda.

As Ms. Kolata explains, several of the country's largest medical insurance companies have changed their policies to dramatically increase the co-payment costs for some drugs.  These drugs, termed "Tier 4" drugs, typically have much higher costs than conventional drugs, and are prescribed for chronic and serious diseases, like "multiple sclerosis, rheumatoid arthritis, hemophilia, hepatitis C and some cancers."  These drugs are usually the only drugs available to treat these patients, and their costs can be astronomical for the typical patient (up to $100,000 annually).  Instead of co-payments of $10-20 per prescription, the article cites co-payment costs of $325 to 4,000, which force patients to "spend more for a drug than they pay for their mortgages, more, in some cases, than their monthly incomes."

The Tier 4 regime started in the Medicare program, and now 86% of those plans have adopted Tier 4 pricing (and there is another level, Tier 5, that is even more expensive), according to Mr. Kolata.  The reason, of course, is curbing costs, and the economic imperatives in Medicare programs are now extending to private medical plans.  For example, insurance companies are offering this option to employers as a way to reduce plan costs and to reduce the costs of insurance, and drug co-payments, for patients needing less-expensive drugs.  Ten percent of private insurance now uses the Tier 4 system.

However, this strategy turns the traditional calculus of medical insurance (indeed, all insurance) on its head.  Insurance has always been based on the model of taking relatively modest premiums from the many to pay the costs of the few that (at any particular time) are entitled to benefits.  James Robinson, a health economist at the University of California, Berkeley, is quoted in the article:  "It is very unfortunate social policy.  The more the sick person pays, the less the healthy person pays."  "This is an erosion of the traditional concept of insurance," said Dan Mendelson of Avalere Health, a research organization in Washington, "[t]hose beneficiaries who bear the burden of illness are also bearing the burden of cost."

The article specifically relates the stories of three drugs impacted by the new program, including Copaxone® (generic name, glatiramer acetate) from Teva Pharmaceuticals, for multiple sclerosis:

Sprycel® (generic name, dasatinib) from Bristol-Myers Squibb, for chronic myelogenous leukemia:

and Tykerb® (generic name, lapatinib) from Glaxo-Smith Kline, for metastatic breast cancer, comprising a random polymer of 4 amino acids from myelin basic protein.  In a sidebar to the story are other Tier 4 drugs, including biotechnology drug products such as Humira®, Cerezyme®, Procrit®, and Neupogen®.

And that, it appears, is all the Times editorial board could think about when deciding the "Paper of Record's" official position.  While properly decrying the insurance industry's shifting of the cost of these treatments onto the patients who were forced to take (and pay for) them, the Times couldn't help reminding us of their anti-technology position.  In an editorial published on Tuesday (see "When Drug Costs Soar Beyond Reach"), the Times ignored the facts presented in Ms. Kolata's article, that the reason for the increased drug pricing was economic, and found the real culprits:

The drug companies, especially the biotechnology companies, are at the root of the problem; they often charge exorbitant prices for monopoly drugs that were developed with heavy government assistance.  Washington needs to rein them in by encouraging generic competition for biological drugs and allowing government programs to negotiate lower prices.

The statement repeats the familiar canards that the uninformed and willfully ignorant bandy about in demonizing biotechnology companies.  The costs of bringing a biotechnology drug to market can be hundreds of millions of dollars, and that cost is not borne by the government or defrayed by "heavy government assistance."  That assistance, which is parceled out in competitive grants to universities, or to small businesses, is given not to produce drugs but to further research and development; drug discovery is a happy and beneficial consequence.  The Times has no evidence, certainly not from Ms. Kolata's article, that the prices for these lifesaving drugs are "exorbitant" or anything more than what is necessary to defray the "exorbitant" costs of developing these drugs in the first place.  And as the Times well knows, a large portion of these costs are incurred fulfilling the regulatory requirements of the Food and Drug Administration.  Of course, there are alternatives, including reduced regulatory scrutiny for new drugs, but that is a cost we as a society do not care to shift from the drug companies to patients.

Ms. Kolata's article mentions that Kaiser Permanente, one of the largest health insurers having policies covering Federal employees and their families, has decided to suspend the Tier 4 system for 2008 and to refund the excess co-payments to their insureds while the company reconsiders its policies (at least for Federal employees in the mid-Atlantic region).  This turnaround shows that Kaiser has the capacity to re-evaluate its position when it has evidence that it has made a mistake.  Unfortunately, on the evidence of the Times' persistent anti-technology stance, it does not have (or is unwilling to exercise) the same ability.

Comments

[Elizabeth]

I think you've got your indications mixed up - I know Copaxone is used for MS, and I'm pretty sure the article said that Tykerb was for breast cancer.

[Kevin E. Noonan]

Dear Elizabeth:

Exactly right. Probably the editor's fault. We will fix it. Thanks for the comment.

[Bingo]

You still have an editing problem...

Copaxone is glatiramer acetate and Tykerb is lapatinib ditosylate.

[Gayle]

Never mind the little errors, who's gonna fix the drug prices so senior citizens can afford them?

[Kevin E. Noonan]

Dear Gayle:

We need a balance between enough profit to promote investment to support R&D, and cheap enough prices so that folks who can't afford high priced drugs get what they need.

I certainly think a senior citizen who is a millionaire (like George Soros or T. Boone Pickens or Ross Perot) needs to be treated differently than the pensioner living down the street. That's the problem with "one size fits all" solutions - they don't work. But the other kind require the type of political will that is hard to come by.

Martin Gardener (I think) had a piece in The New Yorker recently about how France and England developed their national health services, and not surprisingly they both stemmed from the war years. I hope it won't take that kind of cataclysm for the U.S. to get its health care house in order.

Thanks for the comment.