Procedure Costs and Treatment Decisions

There have been a number of articles (1,2,3) discussing the financial incentives built into the healthcare system in the United States.  Built into these discussions are two key assumptions: (1) that financial incentives are influencing treatment decisions and (2) that changing those financial incentives will lead to substantial cost savings for the same quality of care.  The recent release of Medicare Part B payment data from 2012 has made available some anecdotal evidence that these two key assumptions are in fact correct.  With this data it is possible to identify both the level of use and cost of individual therapies.  Here are some examples of inefficiencies that are built into the way that healthcare decisions are incentivized in the USA.

Example: Hemophilia. The treatment with the highest minimum annual out-of-pocket expenses from the CMS data is “Factor VIII recombinant NOS”.  This is a replacement for a missing protein in the blood of patients with Hemophilia A (also used to treat Von Willebrand disease).  The disease causes spontaneous bleeding and according to the World Hemophilia Foundation children with severe, untreated Hemophilia A typically do not survive to adulthood.  However, with treatment life expectancy is close to normal.  Based on the CMS data table, the average cost to treat a senior with this condition is nearly $250,000/year with Medicare covering almost $200,000.  In addition, the treatment is not a cure; it must be continued for the life of the patient. 

In the portion of Medicare Part B that we can see, over $70 million – about $0.62 for every working American – was spent treating 357 seniors with Factor VIII recombinant NOS; those 357 seniors themselves were responsible for around $18 million in total costs.

There are other first line therapies for the treatment of Hemophilia A.  In particular there is a non-recombinant version of factor VIII that is derived from blood plasma (also listed in the table).  The major difference in these two products is the chance of transmission of communicable disease through the use of plasma products.  However, due to modern techniques for detecting HIV and Hepatitis as well as pasteurization techniques, “no blood-borne transmission of hepatitis viruses or HIV has occurred in the last 20 years." Nonetheless, there are only 55 patients (13 percent of those treated with factor VIII or factor VIII recombinant) who are receiving plasma based factor VIII.  If CMS had a mechanism for moving the patients on recombinant factor VIII to the non-recombinant version, it would lower its own costs by at least $34 million per year - $68 million if we extrapolate to the full size of Part B. 

Example: Rheumatoid Arthritis. There is a similar comparison that can be made for two of the rheumatoid arthritis (RA) drugs listed in the "expensive treatments" table, and while the price differences are not nearly so dramatic, the number of patients affected is much larger.  Infliximab ($13,430.70/year) and Tocilizumab ($10,997.55/year) are two competing therapeutics for RA.  The two have been compared head to head in a clinical trial with Tocilizumab either equivalent or outperforming Infliximab on all measures of disease progression.  Nonetheless, Infliximab was given to 42,645 patients in 2012 while Tocilizumab was given to only 2216.  This comparison is not perfect because Infliximab is also an approved treatment for inflammatory bowel disease (IBD). However, the prevalence of IBD among seniors is much lower than that of RA.  Even if we suppose that only a quarter of the Infliximab patients could be moved to Tocilizumab, Medicare would have saved $26 million on just this change in 2012.

Example: Prostate Cancer. Many of the most expensive treatments on the list are cancer therapies.  Sipuleucel-T auto CD54+ is a treatment for end-stage, hormone refractory prostate cancer. Based on the three clinical trials that have been run using the treatment, it adds an average of about 4 months to the lifespans of treated patients.  With the relatively high cost, it is likely that Sipuleucel-T auto CD54+ is inaccessible to most of the population of Medicare patients.  If we estimate the prevalence of late stage prostate cancer based on statistics from cancer.org concerning death rates, then the problem afflicts around 30,000 men per year.

How do we, as a society, value those four months? Is it obvious that all 30,000 men with late stage prostate cancer be treated with Sipuleucel?  This would require that every working American contribute approximately $2/year. Is it obvious that they shouldn’t?  Similarly, it is difficult to deny factor VIII replacement to the 412 seniors in our data set who needed treatment in 2012, but do we as a society need to pay double for the recombinant version? 

Perhaps even more important than these questions is this one: if patients are responsible for 20% of the cost of their therapies, why aren’t they demanding less expensive therapies when they are equally effective?  The answer to this is probably very simple; Americans – and this sometimes includes physicians – simply don’t understand or think about the financial consequences of medical decisions.  Very few people realize that if you order “J7190” instead of “J7192” from the menu of therapeutics (see the table), you get the same result, but your medical bill will drop by almost $10,000 per month.

Of the 4,309 different procedures that are commonly practiced and for which Medicare made at least a partial payment under Part B in 2012, 37 of them cost more than $10,000 per year.  Of these procedures, 31 of them are medications. Currently, CMS is legally banned from bargaining with pharmaceutical companies for the price of medications.  Instead it is bound on one side by the prices those companies set and on the other by the working definition of medically necessary.  Physicians and pharma companies are generally making the purchasing and pricing decisions and both of them benefit from higher prices!

One solution to this problem is to demand that prices for medications be set in some way other than asking the companies who produce them how much they would like us to pay.  On the other hand, letting the manufacturer set the price is the way that a free market society works.  Another option is to change the incentive structure for the buyers.  Under Part B, physicians generally get a percent of the cost back in profit. What would happen if this profit were unrelated to the cost of therapy or even inverted?  Alternatively, perhaps the best solution is to ensure that the patients understand how much they are spending and what they are getting for their – and taxpayer – money.