Before embarking on this new discussion, I hope readers will read (or re-read) my original article, since the more emotionally and politically charged the subject, the more likely letter writers are to respond to something different from what appears on the page. Thus, in the minds of some readers, my cautionary tale about the tradeoffs involved in centrally controlling drug costs, told in part through the story of my own experience with the cancer drug Herceptin, became a brief for a particular health-care system—in this case, the status quo. And an article informed by a mountain of studies on Herceptin, drug-pricing, and treatment diffusion, as well as considerable reporting, was attacked for relying solely on personal anecdote.
On the first point, let me clear up a couple of misconceptions. Like any patient, I have many complaints about the current system. I, too, have wasted time convincing my insurer to pay bills for procedures obviously covered under my plan. I, too, have been bewildered trying to reconcile the strangely different ways in which medical center billing departments and the insurer classify exactly the same expenditures. And, of course, as a patient with a pre-existing condition who has in the past been happily self-employed, I am acutely conscious that my own options are now more limited than they once were.
Before my personal experience as a patient, I objected to the delivery of health insurance through employers, as many economists and policy analysts do. Employer-based health insurance unduly limits the flexibility of Americans to change jobs, work part time, or start businesses and amplifies the negative repercussions of an economic downturn like the one we’re now experiencing. I also know that the current system of reimbursement, led by Medicare, has taken a terrible toll on primary-care physicians in particular, driving many out of medicine and requiring others to skimp on care (spending little time with patients) or develop cosmetic side-specialties (Botox, anyone?) to subsidize their practices.
But acknowledging that the current system has problems and might be improved is a long way from believing that those problems can be solved simply—or that Americans can have, as many readers seem to believe, health care that is simultaneously cheaper, less likely to escalate in cost, more widely available, technologically innovative, and fully responsive to the desires of patients and physicians.
Wiping out administrative costs, often cited as an advantage of centralized health-care systems, might reduce the cost of care to a lower level, but those costs would continue to rise. The growth of medical expenditures in the U.S. is not caused by administrative costs but by increases in the technical intensity of care over time—a.k.a. medical progress. The technocratic magic of “scrutiniz[ing] new treatments for effectiveness,” as described in a January New Republic article, could limit cost increases only by denying patients some of the care they want and by blocking the adoption of newer and more expensive treatments. We know that Americans hate such limits. As a former aide to a Democratic congressman commented in response to my article:
Personally, I think people have very short memories on this debate. It was maybe 10–15 years ago that everyone was up in arms about the possibility of HMOs denying certain treatments or procedures, and managed care got a huge black eye. We had a national debate about whether you could sue your HMO for not allowing certain diagnostic screening procedures. Now, we’re really talking about the same type of denial of certain procedures, but the roles are reversed; huge chunks of the Democratic Party want the limits now, and the Republicans are saying no way, everything should be allowed.
In the early 1990s when patients objected to the limits of managed care, employers responded by shopping around for more generous plans and insurers became somewhat more lenient in defining coverage. Along with competitive pressures, lawsuits and state mandates also forced broader coverage. (Controversy currently surrounds coverage for autism treatments, which make the priciest cancer drugs look cheap by comparison.) The big difference between a centralized system and a competitive one is the speed with which adjustments can be made. In addition, private businesses are generally more easily sued and more subject to political regulation, especially at the state level, than a government health plan would be.
Let me give a few more readers their say and address some common themes. Bill Paine of Gainesville, Florida, writes:
Virginia Postrel’s opinion piece “My Drug Problem” presents only parts of the very important dilemma faced by all societies today, namely affordable health care for everyone. The operative words here are “affordable” and “for everyone.”
While taking New Zealand’s healthcare system to task for attempting to deal with the unbelievable costs associated with the cancer drug Trastuzumab (trade name Herceptin), she completely sidestepped the obvious question as to why this drug is SO EXPENSIVE in the first place. In an article in Scoop Independent News, discussing the very situation Postrel refers to in New Zealand, a representative of the drug manufacturer was asked why the drug was so expensive. His answer was “A lot of research and development that had to go into developing the drug.” When asked for a breakdown of the costs by the reporter, the spokesperson for Roche/Genentech replied, “No, we wouldn’t go into any more detail than that.” I’m not sure if it is prudent and wise to take something like this on face value, particularly given the scandals that have been uncovered involving corporate greed and malfeasance over the past several years. The pharmaceutical corporations provide no shining example of altruistic behavior, the last time I checked.
I live in Florida, a state that has anti-gouging laws on the books. Woe be unto a merchant trying to gouge consumers by charging $100 per sheet of plywood to desperate homeowners after a hurricane. Has there ever been any investigation into whether drug makers are gouging us all? Seems like the ultimate gouge to charge such unbelievable prices for drugs—particularly when the “customers” are those facing their probable demise.
Mr. Paine’s sentiments are echoed by David R. Work of Chapel Hill, North Carolina, the executive director emeritus of the North Carolina Board of Pharmacy.
Virginia Postrel omits the most important word from her article on cancer treatment: price. She and many other commentators on health care use the word cost when the true problem, particularly with new brand name drugs, is price. The actual cost of this therapy is probably in the range of pennies per dose but they charge hundreds or thousands of dollars. Pharmaceutical manufacturers charge and get any price they want for these items.
They also regularly increase prices. One would think that Pfizer, when they launched Lipitor would have set a price that would have returned their investment plus a profit. Pfizer has increased the price on Lipitor ten times in ten years! Physicians, hospitals, and pharmacies could never get away with that.
Drug companies claim that it costs them in the range of $900 million to bring a drug to market but that figure has never been subject to audit. I propose that, as a condition for FDA approval of any new drug, the manufacturer or marketer agrees to a price calculated by the General Accounting Office. This amount would consist of the actual cost to produce the product plus a per cent markup, all, of which is public record.
Both these letter writers assume away the extremely risky and expensive process of drug development. Genentech spent roughly $200 million to turn Herceptin into a marketable drug once the basic research had already been done at UCLA, largely with funding from Revlon. As large as it is, that figure understates the perils of the process. To the consternation of Dennis Slamon, the UCLA oncologist whose research and determination made the drug possible, Genentech nearly dropped the project several times along the way, because success was so uncertain. (The remarkable story of Herceptin is told well in Robert Bazell’s 1998 book Her-2, which is my source for the $200 million figure.) In retrospect, those close calls make Genentech look cold and short-sighted, but the drug could easily have failed, diverting scarce resources from other drugs and doing significant financial damage to a relatively small company. Expensive professionals working in the pharmaceutical industry often go for decades without working on a drug that makes it to market. The costs of a successful drug must also include all the costs of the many, many promising ideas that never work out. (The most expensive failures are the ones that look most promising and so go through the increasingly costly stages of animal testing, human safety testing and human efficacy testing before being rejected.)