Dodged that Bullet!

My wife and I went in to the oncologist's about a week ago expecting my next treatment.  I had received the drug it as part of the clinical trials.  Now it is FDA approved, and the plan was for me to get ongoing maintenance doses.

The doctor comes into the examination room, and says the insurance company has refused approval - I had already received it four times during the trial, and that was their intrepretation of the lifetime limit for the drug.  He said, "I don't know what your financial situation is... but one dose of the drug is $45,000."  Ouch.  Big Ouch.  He said he was still arguing with them - this a new drug and studies are still begin done; someone had done a study that showed value in maintenance doses for those who had responded to the initial round of four doses.  I am one of the lucky ones who had responded (big time) to this drug.  So he had been in the office the previous night faxing 30 pages of research study to the insurance company.

Five days later we got word that treatment was approved, one again proving my oncologist's prowess at an important medical skill - navigating the insurance world.

So here are some thoughts.

The System (My Thoughts as a Patient)
A note to the anti-healthcare reform folks:  I sure am glad that there is not a faceless bureacracy between me and my doctor, and instead I have the caring folks at the insurance company looking after me.

Is this really the best use of the doctor's time?  I agree that medical procedures should be the ones that are proven effective; but it seems like the decision is being done retail, one physician at a time arguing with the drug company.

And faxing?  This is just one example of how the medical system has not come into the 21st century.  He should have at least been able to send a PDF with a click; or better, just send a link to the original of the study.  As part of this process, I had my first email interaction ever with the billing/scheduling people at the oncologist's office - it's always been by phone tag.  (Although the head nurse and I have been doing email for years, on prescription requests, etc.)

On Medical Statistics
This is a pretty classic example of the misleading nature (to the layman) of medical statistics.  The study reported that this drug extended the median lifetime by 2 months.  But a median is not an average.  Some people had no response; in my case, it is quite possible that it has added years.  The classic paper discussing medical statistics is by Stephen Jay Gould, The Median Isn't the Message.

The Economics (My Thoughts as an Economist)
It costs money to do drug research.  Some drugs never pan out.  Some are expensive to produce - this one is produced with monoclonal antibodies - bacteria where we have inserted a gene to make them produce the protein that is the drug, then we kill the bacteria and refine out the protein.  But I do not believe that the production cost is $45,000 per dose.  Instead, the $45K is going to be a combination of (a) the actual costs of producing the drug (b) return on the capital to build the factory to make the drug (c) return on the investment to discover this drug (d) return on all the other drug investment that didn't pan out (e) allocated costs of all those drug reps and advertising (f) whatever profit margin that someone thinks they can get because they have a monopoly on this drug, at least for the life of the patent.

The economic social optimum is reached when the price is equal to the "long-run marginal cost" of producing the drug.  Long-run marginal cost includes the production cost, plus the cost of the factory allocated over its life ((a) and (b)).  The research costs of this and failed drugs get a bit tricky.  Once the drug is discovered, these are fixed sunk costs - they don't affect the cost of producing an additional unit of the drug.  But if we don't allow companies to get back this money, they won't invest in research.  This has been recognized for a long time - European kings issued the rights to a patent for the unique right to produce a good.  It was recognized as such a fundamental function of government that it appears in the U.S. Constitution (Article 1 Section 8.8) - although even then it was recognized that the patent be for a limited time.  So we allow a return on costs of an invention - but for how much and how long?  And finally, drug companies have a lot of self-imposed costs - there are a lot of drug representative traipsing in and out of my oncologist's office, and drug company advertising is pervasive.  They can't spend that money without recovering it somewhere.

So it would be interesting to know the breakdown:  what is the fundamental cost of producing this drug, versus the research costs (and the rate of return the drug companies getting on their monopoly)  and the amount spent on marketing and advertising (over which we've already seen much journalistic ink spilled.)