Big Pharma Cashing in on Fee-For-Service

This article in today’s New York Times: Genentech Offers Secret Rebates for Eye Drug caught my eye… err… attention. It highlights one way that drug companies take advantage of our current fee-for-service system to drive their profit.

The current fee-for-service approach to reimbursing providers for care is often held up as a core problem in our “disease-care” system.  By reimbursing doctors and hospitals for individual services such as doctor visits, tests, and procedures we create incentives to provide more technical and more expensive services rather than the most effective and appropriate care.

It turns out that doctors have the option of using 2 different drugs for a monthly procedure they perform in their office to treat age-related macular degeneration, the leading cause of blindness in the elderly.  One of the drugs, Lucentis, costs $2,000 per dose.  The other, Avastin, costs $20 – $50 per dose.  Genentech happens to make both of these drugs but it seems they ‘prefer’ that doctors use Lucentis.

From the article in The Times:

“Genentech has begun offering secret rebates to eye doctors as an apparent inducement to get them to use more of the company’s expensive drug Lucentis rather than a less costly alternative.

Under the program, which started on Oct. 1, medical practices can earn up to tens of thousands of dollars in rebates each quarter if they use a lot of Lucentis and if their usage increases from the previous quarter, according to a confidential document outlining the program that was obtained by The New York Times.”

So not only are the doctors incentivized to use the drug that is 100 times more expensive, but to get their rebates they need to be increasing their usage compared to previous periods.

Imagine if doctors were reimbursed for treating macular degeneration instead of for providing this treatment – I wonder which drug they would choose.

And as for those poor drug companies with such huge development cost structures and risk, according to Forbes, pharmaceuticals are the 3rd most profitable industry in the United States in 2008.

How can technology help put the consumer back in control?

How about an application that could send me a personalized alert with a link to this NYT article based on the current meds and procedures logged in MY health database. And then, factoring in the details of my insurance plan, it could calculate the out-of-pocket savings available to me if I found a doctor willing to use Avastin.   Mixing in some publicly available data, my PHR could also notify me if my doctor was on the payroll of a drug company that sold the medications he was prescribing.

If we wait for those profiting off the current system to change it, then our healthcare costs will just keep going up and all that money will be moving from our pockets to theirs.

About Mark Feinholz

Digital Health Product Manager. Inspired by technology to help us live happier and healthier lives.
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