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Medicare Drugs Turn Doctors into Millionaires

Americans are still aghast at the Medicare reimbursement data released yesterday. Meanwhile, doctors have been coming to their own defense, and wonks have been offering further analyses. Two helpful articles highlight the role that drug prices play in making “Medicare millionaires.” WaPo explains why ophthalmology is the highest-billing specialty reimbursed by Medicare: Ophthalmologists often prescribe a drug named Lucentis for blindness even though a cheaper alternative called Avastin exists. The difference in price is considerable:

A dose of Avastin costs only $50. A dose of Lucentis costs $2,000. Both Avastin and Lucentis are made by the same company, and they’re remarkably effective in treating a form of macular degeneration that was long the leading cause of blindness among the elderly, The Post reported. They are very similar on a molecular level and probably cost about the same amount to manufacture.

Nonetheless, doctors prescribe Lucentis almost as often as Avastin. They also make more money doing so. Medicare is legally obliged to pay for any drug a doctor prescribes, and doctors also receive commissions of 6 percent to cover their own expenses. The commission a doctor collects on each dose of Avastin would be only about $3, as opposed to $120 on each dose of Lucentis.

A second WaPo story puts this case in perspective. Out of the total $64 billion received in reimbursements in 2012, $8.6 billion went to drug expenditures. Moreover, the 6 percent commission doctors get for prescribing drugs gives them an incentive to pick the most expensive ones. In 2011, when Medicare stopped paying that commission for a drug sometimes used for dialysis, prescriptions decreased by 34 percent.

But the solution isn’t to allow Medicare to control the price of drugs, or to mandate that doctors prescribe only the less expensive of two comparable medications. Top-down controls almost always make a system more complicated and less responsive, reducing quality of care for patients. We don’t need more federal mandates; we need more consumer control. When consumers have more information about prices and greater responsibility for paying them, they will bring market pressure to bear on doctors to use more efficient means of treatment.

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  • Anthony

    As has been said on TAI before, the selling of health care is issue much deserving of scrutiny. “Many health care providers have set up shop in America. From a pure business perspective, those business are almost all economic successes – winners – not economic losers. Expecting our current massive, very well-financed, high-revenue,high-margin, high-growth, high-cost health care infrastructure to voluntarily take steps to reduce costs and prices, and expecting our care infrastructure to also voluntarily and spontaneously improve either care outcomes or care quality is unfortunately naive. Health care in America is a robust and growing nonsystem of immense size, scope, and scale. It is very well fed.” The reimbursement system creates incentives to maximize costs – the selling of health care!

  • free_agent

    It seems that in this case it would be straightforward to cut the injection fee for Lucentis to be the same as that for Avastin. Why is the injection fee calculated as a percentage of the drug cost? The cost of the substance seems to bear no relationship to the work needed to inject it. Though there may be overhead costs related to the M.D. having to keep the stuff in inventory.

    • Andrew Allison

      Although the 6% not an injection fee but a commission, you are otherwise right-on. The doctor’s expense is the same whether the drug costs $50 or $2000, and the payment should be flat-rate. This is a no brainer, and would eliminate the incentive to prescribe the most costly drug available. As an aside, an MD who prescribes Lucentis when Avastin will get the job done is guilty of fraud, and should be treated accordingly. The same, incidentally, is true of any proprietary drug for which an equally effective generic is available. The solution to this problem is equally simple: reimburse the patient who insists on the proprietary drug the cost of the generic equivalent.

  • free_agent

    Though it seems that some of the news reporting is rather distorted. If an ophthalmologist is paid an extra $1 million for administering Lucentis, he’s only keeping $60,000 of that. That’s not pin money, but it doesn’t make him into a millionaire. We need numbers on “gross margin” not “total revenue”.

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