Why Do Doctors Choose a $2,000 Drug Over a $50 One? $117

Dec 9, 2013 | Health Care

A good piece in the Washington Post over the weekend takes a look at why Medicare physicians continue to use an expensive drug to help prevent blindness when what appears to be an equally-effective drug is available for a fraction of the price.

According to the article, Lucentis costs Medicare about $2,000 per injection. Avastin costs only around $50.

The authors outline a long list of reasons why Medicare physicians continue to use Lucentis so frequently, including the need to use Avastin "off-label," that Avastin is packaged in doses generally too large for ophthalmology, and that Medicare doesn't negotiate directly with the manufacturer on prices. While all of these reasons likely play a role, a key reason is that Medicare actually pays doctors more to use Lucentis.  In this particular case, doctors get paid about $117 more by Medicare to administer Lucentis as opposed to Avastin. In other words, Medicare builds incentives that ultimately end up costing the program and the beneficiary more money (this is far from the only example of a perverse incentive caused by Medicare's payment structure).

Medicare actually pays doctors a higher amount for the administration of certain drugs, like Lucentis and many for cancer, the more expensive the drug is. For physician-administered drugs covered by Medicare, doctors are paid the average sales price (ASP) of the drug plus 6 percent of its cost (ASP+6%). This reimbursement is intended to cover the physician's cost to purchase the medication plus handling costs, but it has the effect of incentivizing doctors to use the most expensive drug available, even though the actual cost of handling is not necessarily related to the cost of the drug. In this specific example, a physician would receive roughly $117 (6% of cost difference of the drugs) more to administer Lucentis than Avastin.

MedPAC has highlighted this problem, and both the Bipartisan Policy Center and National Coalition on Health Care, among others, have recommended the simple fix of changing the reimbursement to equal the average sales price of the medication plus a flat payment so that the physician does not receive a higher reimbursement as a result of choosing a more expensive drug. Other reforms such as reference pricing or giving CMS greater ability to deny coverage for certain drugs if a less expensive, therapeutically-equivalent drug is available have also been suggested to reduce the unnecessary costs from using more expensive drugs. At a minimum, though, policymakers should eliminate the incentive created under current policy for doctors to choose the more expensive, yet no more effective, drug.

The exact savings of such policies are not known, but if doctors choosing Lucentis over Avastin costs Medicare $1 billion annually by itself (as the article finds), there may be significant savings available without impacting patient care. Even if not done on its own, maybe lawmakers will look to such policies as part of an offset package to finally fix the Sustainable Growth Rate mechanism.