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One simple drug switch could save Medicare $18 billion over the next decade

Phillippe Huguen/AFP

Suppose Medicare pays for two drugs that do the same thing, but one drug is forty times more expensive than the other. Sounds like an easy target for savings, right?

Unfortunately, the American healthcare system doesn't always take the easy path forward. A new study shows we're wasting $29 billion per decade in this exact type of situation, buying the more expensive drug.

Avastin and Lucentis are both used to treat conditions that lead to blindness in elderly adults. Studies have shown that the two drugs have similar effectiveness and safety. But Avastin only costs $55 per dose to Lucentis's $2,023; patients can require up to 12 doses annually. Medicare Part B spending on these drugs totaled $2 billion in 2010 — about one-sixth of the Part B drug budget.

This is a pretty obvious opportunity to save money for both Medicare and its enrollees, who often have to shoulder some costs of treatment out of pocket. But one-third of patients still receive therapy with Lucentis, despite — or, perhaps, because of — its astronomical cost.

new paper in Health Affairs found that if every patient received Avastin instead of Lucentis over the next decade, Medicare Part B would save $18 billion and patients would save $5 billion. There would be an additional $6 billion in other health care savings.

Saving $29 billion over ten years won't put a huge dent in projected total health care spending, but it's still a lot of money to leave on the table.

Part of the problem is the pharmaceutical company. Both drugs are manufactured by Genentech, a division of Roche. Avastin, the cheaper of the two drugs, was designed to treat certain kinds of cancers; this is what the FDA approved it for. When physicians use Avastin as a therapy against the onset of blindness, it's considered "off-label" use.

Doctors have used the drug off-label to prevent the onset of blindness since since 2005 and the Office of Inspector General within the Department of Health and Human Services recommended increasing the use of Avastin over Lucentis. If the manufacturer sought approval from FDA to market Avastin for treatment of these eye conditions, it would help achieve that goal.

Genentech won't do that, though. They maintain that Lucentis was already designed to treat these eye conditions — but the fact that Lucentis is better for Genentech's bottom line probably isn't irrelevant.

Physician payment could be a problem, too. The way Medicare reimburses for the drugs follows a formula. One dose of Lucentis will net the doctor $95, compared to $29 for Avastin. Consciously or not, doctors might be more likely to recommend the more profitable treatment, especially because Medicare picks up most of the tab.

Doctors have recently faced more scrutiny for their use of Lucentis. In April, the Centers for Medicare and Medicaid Services released a trove of data on Medicare payments to over 880,000 health care providers. The New York Times noted that ophthalmologists ranked highly in these reimbursements, a trend largely attributable to the drug. The Washington Post made it a front-page story.

The price discrepancy is known, and Medicare's recent data dump could turn up pressure on ophthalmologists to opt for Avastin. But this is likely to remain a source of wasteful spending so long as regulatory barriers and financial incentives shield Lucentis's $2,000 price tag.