How Medicare Wastes Money

Genentech…makes an anti-cancer drug called Avastin. It also makes Lucentis, a closely related drug that is used to treat macular degeneration. Both drugs work equally well for macular degeneration, but Lucentis, which is FDA approved for this condition, costs $2,000 a dose compared with $50 for the same amount of Avastin. The FDA can’t approve Avastin for macular degeneration unless the company requests it, and Genentech has no financial interest in doing so. This leaves Medicare with no choice but to pay top dollar for Lucentis. Other than to save their patients money, doctors have no incentive to prescribe Avastin, even though they can do so “off label.” The difference in price costs Medicare, and taxpayers, hundreds of millions of dollars a year.

And because Medicare beneficiaries must absorb one-fifth of the cost of each treatment, Lucentis costs the patient $400 a dose, compared with $11 for Avastin. Medicare can do nothing about it…

Medicare can’t require proof that an expensive new product is any better than the one it’s replacing; it’s explicitly prevented from doing so by law. Medicare can’t even encourage patients and doctors to select a less-expensive option that works just as well. With few exceptions, neither CMS nor the Food and Drug Administration can take a new product’s price or its performance into consideration when making coverage decisions. And once Medicare starts writing checks, private health plans generally fall into line.

More from Art Kellermann at RAND.

Comments (13)

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  1. Sammy says:

    Yet another example of government inefficiency!

  2. Bubba says:

    I thought Medicare was allowing doctors to use Avastin rather than Lucentis. These are the same drug, with just the label and dose packaged differently. Lucentis has been touted as an example of price-gouging by drug makers. Every eye doctor knows about this. Some use Avastin because they side with Genentech. Others use Lucentis because they (supposedly trust Genentech more to package the dose). Genentech has made a big deal out of the compounding pharmacies having sterilization problems. One Miami compounding pharmacy was traced as the source of about a dozen severe eye infections due bad packaging.

  3. H. James Prince says:

    Classic case of the left hand not knowing anything of what the right hand is doing.

  4. Bob Hertz says:

    This is not just an example of government inefficiency.

    It is also an example of government timidity before drug companies.

    In most other nations, a cancer patient is considered vulnerable enough to be protected from price gouging.
    This is not normally left to the free market, not even in Switzerland with its relatvely free-makret system.

    Most other nations have Pharmacy Price Review Boards.

    We certainly have no shortage of bureaucracies in the US that could monitor price gouging if Congress gave them the authority to do so.

  5. MarkH says:

    Wow, this is an extraordinarily misplaced criticism. This is a critique of our intellectual property system, this has nothing to do with Medicare, this has everything to do with patent law. Why pin this on Medicare?

    Not to mention, doctors are perfectly capable of prescribing off-label. This is a nonissue, and I’m sure does not represent a significant proportion of waste for medicare. The real “waste” is plan D, which prevents medicare from engaging in collective bargaining for lower drug prices. An anti-free market reform from a Republican president that was a giveaway of taxpayer money to drug companies.

  6. Bob Hertz says:

    I too would favor Medicare being allowed to bargain over drug prices……

    but what about the millions of Americans who have no one to bargain for them?

    This is an issue throughout health insurance. Blue Cross and Aetna actually pay reasonable fees for many procedures, but you have to pay a high monthly premium to get the benefit of this bargaining.

    I will stick to my position that all citizens deserve to pay reasonable fees, especially for cancer care where the only ‘choice’ is to die. In health care, America balkanizes its citizenry into corporate types, over 65′s, the poor but not the working poor, etc.

  7. Breck says:

    John: I saw this in Sunday’s Sacremento Bee during a visit — http://www.sacbee.com/2013/04/07/5320435/viva-mexicos-rational-health-care.html

    It’s all about how cheap quality medical care is in Mexico compared to the U.S. I can identify a few things that make U.S. care more expensive, such as malpractice insurance, defensive medicine, and the need for U.S. hospitals to compensate for patients who can’t pay but can’t be turned away. There are bound to be more factors that I haven’t thought of. Help me out here. breckh@gmail.com

    Breck

  8. Gabriel Odom says:

    “Other than to save their patients money, doctors have no incentive to prescribe Avastin, even though they can do so ‘off label.’”

    And now we get to the heart of the matter: people are not connected to the money spent on their healthcare. If patients would be made responsible for even 15% of their non-catastrophic medical bills, then many of these inefficiencies would be driven from the market.

  9. Jenny says:

    “Genentech, another big pharmaceutical company, makes an anti-cancer drug called Avastin. It also makes Lucentis, a closely related drug that is used to treat macular degeneration. Both drugs work equally well for macular degeneration, but Lucentis, which is FDA approved for this condition, costs $2,000 a dose compared with $50 for the same amount of Avastin. The FDA can’t approve Avastin for macular degeneration unless the company requests it, and Genentech has no financial interest in doing so.” So basically nobody cares what consumers have to spend on drugs. Pharmaceutical companies should give consumers options. They should request the FDA to approve both types of drugs, and let consumers decide which one they would rather spend their money on. The majority will probably go for the least expensive one, just for affordability matters. But there will also be those groups that go by the you-get-what-you-pay-for approach and wouldn’t mind spending thousands of dollars on a drug as long as they know it’s a “good one”.

  10. Bernard Wolsh says:

    Saving patients money should be a mayor reason for doctors to prescribe certain medications, and for drug companies to request the FDA approval of more affordable medications. Help me help you.

  11. Linda Gorman says:

    @Jenny–one does not simply “request the FDA to approve both types of drugs.”

    On has to go through a process. And that process is very, very, expensive.

    Who should pay for that?

  12. Jenny says:

    @Linda,

    It should be the responsibility of the pharmaceutical companies to take care of any expenses regarding any of their products. Shouldn’t it?

  13. Buster says:

    Jenny’s argument reminds me of the case a dozen years ago when insurer Wellpoint petitioned the FDA to take Claritin Allegra, and Zyrtec over-the-counter (OTC) before the drug’s respective owners requested it. In the end, the FDA waited to approve over-the-counter sales of these second generation antihistamines until the drug makers petitioned the FDA to do so.