WSJ: How Pfizer Settled on $9,850 per Month for New Drug

WSJ:  How Pfizer Set the Cost of Its New Drug at $9,850 a Month

An excerpt:

The average cost of a branded cancer drug in the U.S. is around $10,000 a month, double the level a decade ago

Pfizer’s multistep pricing process shows drugmakers don’t just pick a lofty figure out of the air. At the same time, its process yielded a price that bore little relation to the drug industry’s oft-cited justification for its prices, the cost of research and development.

Instead, the price that emerged was largely based on a complex analysis of the need for a new drug with this one’s particular set of benefits and risks, potential competing drugs, the sentiments of cancer doctors and a shrewd assessment of how health plans were likely to treat the product…

In 2013, Pfizer hired outside firms to conduct hourlong interviews with more than 125 cancer doctors in six cities…

Pfizer hired firms that surveyed more than 80 health-plan officials such as medical directors and pharmacists…

Pfizer employees say the mock reviews supported a monthly price below $10,000. If it was higher, insurers could start requiring doctors to fill out paperwork justifying its use.

My take: This article makes clear that the driver of higher pharmaceutical prices is based on a shrewd assessment of what the market will bear.

Related blog posts:

Why Shopping for Health Care Does Not Work and What Can Be Done About That

From NY Times:  Shopping for Health Care Simply Doesn’t Work. So What Might? (Thanks to Ben Enav for pointing out this article)

An excerpt:

What this latest study suggests, in the context of other studies, is that if people can’t shop for elective M.R.I.s, there’s hardly a chance they are going to do so with other health care procedures that are more complicated and variable.

Even if 40 percent of health care is shoppable, people are not shopping. What seems likelier to work is doing more to influence what doctors advise.

For example, we could provide physicians with price, quality and distance information for the services they recommend. Further, with financial bonuses, we could give physicians (instead of, or in addition to, patients) some incentive to identify and suggest lower-cost care.

Leaving decisions to patients, and making them spend more of their own money, doesn’t work.

Expert Actuary is Overcharged by the Hospital in ‘Collusion’ with the Insurance Company– Guess Who Wins

From NPR Why Your Health Insurer Doesn’t Care About Your Big Bills

This is a terrific article that explains a lot about what is wrong with our health system’s economics.  This article details how an expert actuary is overcharged by Aetna and NYU Langone for a partial hip replacement and how insurance companies are NOT good financial representatives for patients.

Some excerpts:

Widely perceived as fierce guardians of health care dollars, insurers, in many cases, aren’t. In fact, they often agree to pay high prices, then, one way or another, pass those high prices on to patients — all while raking in healthy profits…

Before Frank’s hip operation, he asked NYU Langone for an estimate. It told him to call Aetna, which referred him back to the hospital. He never did get a price…

For one item in his bill the implant, Aetna said NYU Langone paid a “member rate” of $26,068 for “supply/implants.” But., the maker of his implant, … told him the hospital would have paid about $1,500…

Turns out, insurers don’t have to decrease spending to make money. They just have to accurately predict how much the people they insure will cost. That way they can set premiums to cover those costs — adding about 20 percent for their administration and profit

It’s as if a mom told her son he could have 3 percent of a bowl of ice cream. A clever child would say, “Make it a bigger bowl.”

Wonks call this a “perverse incentive.”…

After the hearing, Nugent said a technicality might have doomed their case. New York defendants routinely lose in court if they have not contested a bill in writing within 30 days, he said. Frank had contested the bill over the phone with NYU Langone and in writing within 30 days with Aetna. But he did not dispute it in writing to the hospital within 30 days.

My take: While I’m no expert, I have had a similar experience where I was convinced that my insurance company would want to look into their agreement with a local hospital (Northside Hospital) because I was charged exorbitantly for the processing of a pathology specimen.  Further aggravating the situation was that I had no idea that this specimen, obtained from an outpatient visit, would be sent to a hospital system, rather than an outpatient pathology group.  It turns out that the insurance company had no interest in looking into this matter, even though the cumulative effect of these types of pathology charges were enormous.

Related blog posts:


NY Times: Financial Bill of Rights for Patients

NY Times: Nine Rights Every Patient Should Demand

This article addresses a fundamental problem in medicine: lack of price transparency, and the complexity of understanding health care expenses..

The right to an itemized bill in plain English.

  • Patients can’t detect and dispute improper charges if their bills involve dozens of pages of medical abbreviations. Studies have found that 30 percent to over 50 percent of hospital bills contain errors…

The right to never receive a surprise out-of-network bill.

The right to accurate information about the provider network in my insurance plan.

  • Doctors … must be in-network for all the procedures they normally perform and on all days of the week they practice. If a provider is listed as in-network but is not, the insurer should take care of the charge.

The right to a stable network.

  • I buy my insurance policy for a year. If my doctor or insurer stops participating in my network within that year or in the midst of treating me for an acute disease, I should still be billed as an in-network patient.

The right to be informed of conflicts of interest.

  • Patients should know if their doctors own a financial stake in a testing or procedure facility before a test or procedure is ordered or scheduled…

The right to be informed in advance about any facility fees.

  • A procedure can come with different price tags depending on where it is performed…

The right to see a price list for elective procedures.

The right to be informed of cheaper options.

  • Many doctors recommend the most expensive course of care and don’t tell patients that there are other options…

The right to know that a disputed bill will not be sent to a collection agency.

  • The threat of dealing with bill collectors and a damaged credit rating is used to intimidate patients into paying up without asking questions…

I know these rights might seem like a fantasy in our current system, with its overwhelming complexity and cost. But they are actually quite similar to the rights we expect in any other sector of our economy. 

My take: The way we pay for health care does not make sense.  Understanding costs for medical care should be like reading the nutrition label boxes.  Currently, even an expert in health care has difficulty understanding what costs to expect.

Increasing Cost/Use of Biologic Therapies for Inflammatory Bowel Disease

As noted in a previous blog post (Changes in the Use of IBD Biologic Therapy), there has been an increased use of biologic therapy early in the course of patient’s with inflammatory bowel disease (IBD). Another retrospective study (H Yu et al AP&T 2018; 47: 364-70 -thanks to Ben Gold for this reference) examines the market share and costs of biologic therapy for IBD using the Truven Marketscan Commercial Claims and Encounters database (2007-2015).  This database consists of out-patient and in-patient pharmaceutical claims of approximately 40-50 million privately insured patients each year from patients from all 50 states (U.S.).

Key findings:

  • Among 415,405 patients with IBD (188,842 with Crohn’s, 195,183 with ulcerative colitis, 31,380 with indeterminate IBD), the proportion using biologics increased over the 9-year period (2007-2015); overall, the market share increase was from 7.1% (2007) to 20.5% (2015).
  • There were 28,797 pediatric patients with IBD (17,296 with Crohn’s, 9368 with ulcerative colitis, and 2133 with indeterminate colitis). The overall market share in pediatric patients was the highest, increasing from 19.1% to 45.9%.
  • For all patients with Crohn’s disease (CD) the proportion receiving biologic therapy increased from 21.8% to 43.8%.  For patients with ulcerative colitis (UC), the proportion increased from 5.1% to 16.2%.
  • Per-member per-year (PMPY) costs increased. “The average biologic-taking patient accounted for $25,275 PMPY in 2007 and $36,051 PMPY in 2015.”  This was similar in the pediatric population, going from $23,616 PMPY in 2007 to $41,109 PMPY in 2015.
  • The share of costs of medicines: the costs of biologics as a share of the total increased from 72.9% in 2007 to 85.7% in 2015. 95% of the pharmacy costs in children with IBD are attributed to biologics.

My take: This trend of increasing use of biologics and their associated costs is going to continue due to their effectiveness. While there are direct costs related to these medications, the net cost is unclear as they can prevent hospitalizations and surgeries. In addition, by helping to spare corticosteroids and increasing response rates, biologic therapies improve quality of life, minimize opportunity loss, and optimize long-term health outcomes.

Bright Angel Trail, Grand Canyon


Looking at the ‘Less is More’ Narrative

There is a widespread claim that up to 30% of health care dollars are wasted.  This claim is similar to other claims of fraud and abuse often extolled in political campaigns.  The questions, at least in medicine, is whether this claim is accurate and even if it is, is there a way to improve health care spending.

A recent commentary (L Rosenbaum. NEJM 2017; 377: 2392-7) tackles the “Less-Is-More-Crusade” in medicine.  Some of the key points:

  • The 30% waste figure is often attributed to Dartmouth investigators ((
  • This figure has many limitations including inadequate control for severity of illness, regional price differences, and the possibility that variation is due to underuse as well as overuse.
  • Confounders: difficulty controlling for sicker patients
  • “Other research suggests that higher spending is actually associated with better outcomes.”

Dr. Rosenbaum describes how MIT economists identified what worked out to be a randomization experiment of health care.  These economists examined hospital performance among patients transported by ambulance.  Since the ambulance companies had hospital preferences, the “patients [were] essentially randomly assigned to hospitals.”  Key finding: “hospitals that spend more during hospitalizations for various acute conditions have lower mortality rates at 1 year post-hospitalization than lower-spending-hospitals, a relationship driven largely by inpatient treatment intensity” (J Pol Econ 2015; 123: 170-214).

Another recent analysis found that Medicare beneficiaries discharged from EDs in “hospitals with the lowest admission rates were 3.4 times as likely to die within a week” as their counterparts at hospitals with the highest admission rates.  In addition, “low-admitting EDs tended to serve generally healthier populations.”

Dr. Rosenbaum points out that while many attribute physician greed as a driver of excess testing/overdiagnosis in a fee-for-service model, there are many other explanations.  Physician expertise and desire for more certainty are relevant factors.

My take: This commentary provides a lot of nuance.  Yes, there is certainly waste but there is a lot of underuse in medicine. Like in areas outside of medicine, “eliminating fraud and abuse” is an oversimplification and will be difficult to achieve.

Grand Canyon basin