Health & Human Services

The Biological Boom

As biologic drugs enter the mainstream, they could break the Medicaid bank--and the health care system.
by | November 2006

Think the prescription bill is big now? It's about to get a whopping amount bigger. Biologics and their ultra-high price tags are making their way into the pharmacopoeia.

These remarkable biotech therapies--medical preparations based on living organisms rather than chemical compounds--are being used to treat complex conditions, such as cancer and multiple sclerosis, as well as hitherto untreatable diseases. While we're not seeing advertisements for them on television--at least, not yet--physicians and their very ill patients are demanding access to biologic drugs that have been approved by the U.S. Food and Drug Administration. And more of the medications are poised to enter the market as hundreds of new products finish their clinical trials.

That's good news for patients. For insurers (including state and local governments in their role as employers and as bill-payers for Medicaid), the additional demands on spending will be staggering. According to Sean Tunis, director of the Center for Medical Technology Policy, the drug costs for basic 5-FU chemotherapy treatment for colon cancer is around $300 for two months; biologic regimens for colon cancer start at $21,400 for two months.

As new biologics come on the market, they will be "launched at prices 10 to 100 times higher than those of the conventional drugs they replace," notes James C. Robinson, a professor of health economics at the University of California, Berkeley. As the drugs enter day-to-day medical practice, Robinson adds, they are "subject to the characteristic challenges of contemporary medicine: overuse, underuse, and misuse."

With the health care system on the cusp of a biologic era, state and local health officials should be thinking about how to deal with them- -in terms of access and cost. Health dollars are finite, and state Medicaid programs are already under pressure to cut costs. So what happens when biologics and their price tags are part of the mix?

Several private insurance companies have begun grappling with the issue. They aren't trying to deny coverage--that is something, most observers agree, that public opinion would not likely tolerate. They are, however, taking steps to moderate the cost trajectory by tightening up the management of their drug formularies and thereby keeping a tight rein on access.

For starters, they are insisting that less expensive treatments be tried first and that the step up to biologics be incremental. The idea is to make sure usage is targeted to those who absolutely need the therapy and that therapy alone. It's an approach similar to one that many states already take with their Medicaid formularies: Try the less-expensive generic before moving on to a more expensive brand-name medication.

The other policy thrust is to make sure physicians stick strictly to FDA limits on use. That is, while the FDA typically approves a biopharmaceutical for a specific disease and for specific patients, physicians may broaden those dictates by prescribing the medication for a wider range of patients or even for so-called "off label" uses-- conditions that are not part of the FDA approval. "Much of medical management policy for biologics," Robinson writes in a recent edition of the journal Health Affairs, "can be interpreted as insurers' efforts to enforce the FDA label and limit the use of the often high- risk biologics to indications for which they have been adequately studied for safety and efficacy."

Some insurers are putting biologics in a special pricing tier of their formulary, a tier that stipulates a much higher co-pay, thus putting a portion of the burden for treatment on the patient. There also are attempts to get more evidence of cost benefit, but as yet, Tunis points out, "we don't have robust research to make that available."

There is one positive side to the cost picture. According to James Greenwood, president of the Biotechnology Industry Organization, some biologics can block disease at the cellular and molecular level, in which case, he says, "the danger of the disease is forgone. This is the promise: Prevent diseases from expressing themselves." In other words, forget cost controls--you've got disease control.

You can't beat the price tag on that--if and when it happens in the distant future. For now, though, insurance companies are de facto health policy makers: They're taking the lead on ways to keep the costs of an exciting medical breakthrough from getting out of hand.

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