Drug prices: Why the cure always seems worse than the disease

Posted by Marc Hodak on June 1, 2015 under Unintended consequences | Be the First to Comment

Choices, choices


Why are drug costs are so darn high? This perennial question was once again raised at an annual medical meeting by Dr. Leonard Saltz, a senior oncologist at Memorial Sloan Kettering. He contended that newer combination cancer drug treatments costing almost $300,000 are simply not sustainable. Dr. Saltz mentioned one possible contributor to the high costs sure to excite those of us who catalogue perverse incentives:

He…called for changing the way Medicare pays for infused drugs. Doctors currently receive a percentage of the drug’s total sales price. The payment method has created a conflict of interest because cancer doctors can make more money by using the most expensive drugs, he said.

If you believe, as I do, that drug companies should make money on drugs, and doctors should make money being doctors, then the idea of doctors making money selling drugs sounds suspicious. It’s easy to be wary of brokers in any field–real estate, investments, executive search–where their income is based on how much you pay for the things they are recommending; ergo, a conflict of interest. Each of the aforementioned brokers would argue that their interest in getting a deal done as quickly as possible easily trumps getting the highest possible price, and they would have a point.

Doctors can’t say that; they don’t need to create a sense of urgency for cancer treatments. Instead, they may argue that the more expensive treatment is the most effective, which is generally true because that’s how drug companies generally price their treatments. In fact, for the true breakthrough drugs–those treatments most likely to be pushed by doctors–it can easily come down to “your money or your life.” But if insurance companies or the government are paying for it, then everybody wins!

Except, of course, those of us paying insurance premiums or taxes. Which is Dr. Saltz’s point: A system of charging prices that few of us could bear individually cannot, in the long run, be borne by us collectively. Something needs to be done. So, when we are poking through the morass that is our health care reimbursement system, and see something that looks like a broker’s incentive, it is tempting to think, “Hey, all you have to do is change the incentive and, presto, problem alleviated,” at least somewhat. Just like my initial reaction to a cancer diagnosis would be, “Well, cut it out.” Right?

Unfortunately, most people involved in trying to engineer market-wide incentives (as opposed to letting the market do its work) practice their craft without anything like the training of doctors for practicing medicine. These policy makers, and the wonks that cheer them on, focus exclusively on the intended effects of their schemes without really understanding–or intentionally downplaying–the side effects. They are excited by the prospect of driving particular behaviors without really understanding the whole human-built ecosystem that both impacts and is impacted by those behaviors. If a drug company tried to create and sell treatments the way that policy makers create and sell health care programs and regulations, you would finally see executives going to jail.

I don’t mean to give the impression that the doctors’ share of drug sales criticized by Dr. Saltz is an accidental result of some idiot bureaucracy that simply needs fixing. The policy is far more likely the result of horse-trading whereby politicians or bureaucrats tried to take something away from doctors somewhere else in order to keep costs to the government down, then tossed them this “incentive” to help make up for that lost income. This deal’s financial and political implications were probably calculated to the penny and the vote. Multiply that deal by twenty million others like it, and that, folks, is how we got the insanely complicated and expensive system we have today.

So, Dr. Saltz is no doubt right that it would make sense for Medicare to change how it reimburses doctors for using drugs if all we cared about was the cost of those drugs. On the other hand, given how riddled our medical reimbursement systems are with perverse incentives, like a giant drug cocktail with innumerable interactions, even ‘obvious’ changes in Medicare reimbursement rules are likely to create unintended consequences that are worse than the current conflict of interest. For instance, at the point that our medical reimbursement systems actually succeed in driving down costs, it may suddenly become harder to find doctors or drugs.

Or, as any good doctor might say, if we aren’t careful, the cure may be worse than the disease.

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