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Public Policy and Access to New Drugs: The Case of Cancer Chemotherapy

LEE MORTENSON

Innovative therapies and their dissemination are threatened by more than just regulatory policies. Restrictive reimbursement policies are slowing the diffusion of new technology and diminishing the quality of care. These restrictions shorten the effective patent life of new products since physicians are blocked from using many of them for all the indications that the scientific literature recommends. This may seriously reduce the rate of return on investment for new drugs to pharmaceutical companies. The case of cancer research and clinical care is illustrative of the broad impact of reimbursement policies on the availability of new therapies.

A broad array of incentives and disincentives influence the actions and rules of the many players involved in health care. They influence the behavior of individual physicians and patients as well as that of institutional providers, payers, pharmaceutical companies, and regulatory bodies. These incentives are changing quite radically, altering the potential for delivery of innovative, quality care.

New and more restrictive reimbursement policies are among the most significant influences in today's health care system. In particular, they produce strong disincentives for the development and diffusion of new technologies. The cancer treatment community is experiencing more than just a temporary lack of payment for new drugs. It is seeing changes in the patterns of care by physicians and other health care providers as well as a shifting of incentives. Physicians who were trained to be innovators (or at least to stay current) now have strong incentives to be the last to adopt new technologies. These changes are pervasive and threaten to influence patient care negatively. This paper will examine cancer chemotherapy to illustrate these points.



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The Changing Economics of Medical Technology 4 Public Policy and Access to New Drugs: The Case of Cancer Chemotherapy LEE MORTENSON Innovative therapies and their dissemination are threatened by more than just regulatory policies. Restrictive reimbursement policies are slowing the diffusion of new technology and diminishing the quality of care. These restrictions shorten the effective patent life of new products since physicians are blocked from using many of them for all the indications that the scientific literature recommends. This may seriously reduce the rate of return on investment for new drugs to pharmaceutical companies. The case of cancer research and clinical care is illustrative of the broad impact of reimbursement policies on the availability of new therapies. A broad array of incentives and disincentives influence the actions and rules of the many players involved in health care. They influence the behavior of individual physicians and patients as well as that of institutional providers, payers, pharmaceutical companies, and regulatory bodies. These incentives are changing quite radically, altering the potential for delivery of innovative, quality care. New and more restrictive reimbursement policies are among the most significant influences in today's health care system. In particular, they produce strong disincentives for the development and diffusion of new technologies. The cancer treatment community is experiencing more than just a temporary lack of payment for new drugs. It is seeing changes in the patterns of care by physicians and other health care providers as well as a shifting of incentives. Physicians who were trained to be innovators (or at least to stay current) now have strong incentives to be the last to adopt new technologies. These changes are pervasive and threaten to influence patient care negatively. This paper will examine cancer chemotherapy to illustrate these points.

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The Changing Economics of Medical Technology CANCER CARE: A SERIES OF INCREMENTAL INNOVATIONS In the 1950s and 1960s cancer research and treatment changed radically with the discovery that combination chemotherapy could overcome tumor cell resistance and provide better patient survival than single-drug therapy. In the 1970s and 1980s investigators sought to determine the drug combinations that would be most effective against specific types and stages of cancer. Advances in cancer treatment were incremental, with different chemotherapy combinations being tested, improved, and promoted by a broad spectrum of clinical trials financed by what is now a $2 billion annual research budget (1). A number of factors altered the patterns of cancer care in the 1970s. President Nixon's approval of the National Cancer Act in 1971 substantially increased the funding of university-based cancer research. This prompted the pharmaceutical industry to begin priority research into oncology and oncology-related drugs. Within a few years a profound change in cancer care occurred, advanced by significant federal and industry funding for cancer research and by the creation of a new profession —medical oncology. The locus and nature of clinical care for cancer patients changed significantly in this period. Surgeons dominated cancer care in the 1950s and 1960s. In the 1970s cancer patients began to be referred to the emerging specialists in medical oncology to receive the innovative therapies they were testing or that had been proven more effective than surgery or radiation therapy alone. Over the past decade medical oncologists have become the primary clinicians for patients with malignancies. Universities played a key role in the evolution of oncology. They promoted awareness of oncology as a specialty through the creation of cancer centers that were given virtual departmental status. Cancer center directors were provided all the perks of medical school department chairmen. Cancer centers prospered because they had both money and manpower. They had large budgets with substantial basic and clinical research funds from the National Institutes of Health (NIH), pharmaceutical companies and other public and private sources, and significant clinical revenues, as well as the researchers and clinicians needed to staff the clinical trials and treatment units. Community hospitals responded to the availability of new therapies and newly trained medical oncologists and began offering cancer chemotherapy services. Thus, community hospitals became involved in the rapid dissemination of new technology. A national cancer research machine developed that included community and university hospital components. National cooperative research groups formed, which had both university and community affiliates. These cooperative groups had access to vast numbers of patients eligible to participate in clinical trials. Affiliation with clinical research provided many

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The Changing Economics of Medical Technology community oncologists a source of professional prestige and current information helping them to compete for patients. A culture was created in which clinical cancer research was seen as providing the best therapy for many patients and thus was made broadly available in the community. The development of the Association of Community Cancer Centers (ACCC) was based on the concept that community oncologists and hospitals should emulate university cancer centers and provide programs that included clinical research, use of the latest therapies, interdisciplinary cancer treatment planning, prevention, early detection projects, and public and professional education activities. One interesting effect of this change in “ clinical culture” was that clinical research shifted from a university-based to a community-based activity. In the early 1980s about 5 percent of patients in National Cancer Institute (NCI) clinical trials were entered by community physicians; by the end of the 1980s, the community contribution reported by NCI national cooperative group chairmen was in excess of 60 percent. The system had many factors favoring the rapid dissemination of research findings into clinical practice. Trained oncologists seeking practice opportunities in every community regardless of size provided many of the newest therapies to their patients, often through involvement in national clinical trials sponsored by the NCI. Significant peer and public pressure, fueled by massive media campaigns by the NCI and NIH, stimulated awareness of and desire for the newest cancer therapies. Peer pressure and training that emphasized the ethos of innovation as the standard of care to which oncologists should aspire also promoted rapid adoption of new treatments. In addition, a large number of oncology journals appeared, providing an accessible, widely read forum for the frequent dissemination of new research. Of course, a variety of other factors affected the use of new technology in oncology. Competition between university and community hospitals increased as many academic centers, recognizing the need for clinical revenues to supplement declining federal support, sought to attract patients with state-of-the-art therapies. During the 1980s, NCI battled with the Food and Drug Administration (FDA) publicly and privately to speed approval of new cancer drugs. The development of the Group C and treatment investigational new drug (IND) categories served as alternate mechanisms to expedite the dissemination of new drugs into clinical use. Over the same period pharmaceutical firms invested in cancer and AIDS research and development (R&D) to develop the therapies of the 1990s. Indeed, both the success of new agents that have added months and years to the lives of cancer patients and the failure to find a “magic bullet” have drawn attention to oncology as an area requiring much additional work. However, the payoff of all of these changes in cancer treatment and care, in terms of patient survival and quality of life, scientific understanding of cancer, and financial return on investment, is far from complete.

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The Changing Economics of Medical Technology A PERIOD OF TRANSITION: FROM RAPID GROWTH TO STRICT CONTROL The avidity with which new technologies are adopted has changed over the past decade. There has been a 7-year period of transition from liberal acceptance of innovations to our current situation in which the diffusion of new technologies is most often discouraged. In less than a decade we have moved from an era in which new technologies were heavily promoted to an era in which they are sometimes offered reluctantly and in which patients may have to sue their insurance companies to receive the new types of care. This has been the case for several patients desiring coverage for autologous bone marrow transplantation in the treatment of breast cancer (2). During the same period, the health care system has changed from an environment in which it was hard for a hospital not to survive financially to one in which many hospitals are closing and many more are concerned about their economic position. Instead of attempting to regulate facilities, government health care policies have focused on setting average prices for diagnoses, letting health care providers figure out how to deliver care within those price constraints. Overall, the use of new technologies, often higher in price than older, less effective technologies, has been constrained and discouraged by changes in the philosophy and implementation of reimbursement systems. REIMBURSEMENT POLICIES AND THEIR EFFECT ON THE USE OF NEW TECHNOLOGIES The Effects of the Prospective Payment System First signalled by the Federal Tax Equity and Fiscal Responsibility Act of 1982, changes in federal and private policies on prospective payment have diminished the use of new technology in the community. The diagnosis-related group (DRG) coding system, set up for Medicare 's Prospective Payment System (PPS), has significantly changed patterns of care. Studies of changes in the coding of DRGs reveal a number of side effects that strongly discouraged innovation in patient cancer care. For example, patients previously coded by their inpatient disease diagnosis (e.g., lung cancer) and reimbursed as such are often recoded for their chemotherapy admissions not by disease diagnosis but by a single procedure code that is reimbursed at a lower rate. This policy does not take into account that patients with, for example, lung cancer admitted to the hospital for chemotherapy often have complications or require additional care; in reality, they consume more resources than those for uncomplicated intravenous infusion. However, DRG 410—chemotherapy—does not take into account the higher rates of resource use (3). In fact, DRG 410 is the lowest weighted of all the DRGs. Because of the

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The Changing Economics of Medical Technology low reimbursement rate and the recategorization of other diagnoses into this DRG, tens of thousands of cancer patients have had their care moved out of the hospital setting. Inpatient treatment that would have been adequately reimbursed under the old Medicare system now receives a lower level of reimbursement. As a consequence, chemotherapy on an inpatient basis quickly became a financial liability, as did inpatient treatment of a number of other cancer diagnoses. More recently, changes in the current procedural terminology (CPT) coding have disallowed payments for oncologists when they give chemotherapy in a hospital outpatient department but not when they administer it in their offices. The overall results of PPS are dramatic: hospital administrators became wary of investing in additional hospital technology for cancer treatment, patients were treated in either hospital outpatient clinics or physician offices, hospitals rapidly invested in the home health and hospice businesses, freestanding radiation therapy centers sprung up across the country, and some administrators canceled federal research grants. At the same time, managed care insurance plans began requiring pre-approval of treatment regimens, often denying or delaying reimbursement for new technologies or their use for new indications. As private insurers attempted to battle cost shifting by hospitals (i.e., hospitals charging privately insured patients more to make up for the loss of federal revenues), they experienced their own losses and sought to reduce costs. These new costs, although only partially generated by new technologies, were perceived by payers to add to their total bill rather than substitute for outmoded or costly technologies. The Dis-Integration of Care As the payment and coding system drives cancer care providers to deliver care at different locations for different types of cancer patients based upon differing insurance schemes, we are seeing dis-integrated care. This is especially tragic given the original thrust of modern oncology, which emphasizes interdisciplinary care. Cancer patients clearly benefit from co-ordinated, multimodality therapy involving surgeons, medical and radiation oncologists, and nursing personnel in a progressive management activity. However, instead of a coordinated single site for cancer care, we see patients moving from the hospital to freestanding radiation therapy centers to medical oncologists ' offices and back again. I picture cancer patients on MX missile tracks, moving from one location to another, depending on the type of available reimbursement. In one notable case a health maintenance organization (HMO) insisted that a patient go to one hospital for surgery, another for inpatient radiation therapy, a freestanding center for outpatient radiation therapy, and another hospital for chemotherapy. So much for coordinated care.

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The Changing Economics of Medical Technology Growing Patterns of Denial of Payment The ACCC recently surveyed oncologists across the nation about the prevalence and nature of reimbursement problems (4). The responses indicated that 90 percent of oncologists are spending more time than they were 3 years ago in attempting to get adequate third-party reimbursement, 90 percent said that they were having more difficulty getting reimbursed by managed care plans than 3 years ago, and 60 percent stated they were experiencing increasing difficulty within the last year receiving payment for previously reimbursed cancer therapies. Sixty percent indicated there had been a decline in reimbursement for cancer therapy over the previous year. Of those surveyed, 55 percent reported one or more denials by an insurance company because a drug was not being used for its labeled indication, and 40 percent said they were experiencing denials because the insurance company claimed the drug was experimental. Perhaps the most disturbing report was that 23 percent indicated they were receiving some denials because a drug was being used as part of combination chemotherapy. Ninety percent of all cancer therapy, and our most effective therapy, involves a combination of drugs. While the FDA has a mandate to approve combinations of drugs, approval of all the current chemotherapy combinations and their addition to the FDA label would require a herculean effort well beyond the resources of the agency. If insurers deny payment for combination therapy because a drug is not approved for use in combination, we would see 90 percent of all effective chemotherapy disappear (5)! When physicians were asked how much of their time was going toward trying to get reimbursement for denied claims, they said about half a day a week. In addition, the oncologist's staff was spending about 18 hours a week. This amount of time may be the maximum available to physicians for claims adjudication. Physicians who were interviewed remarked that they cannot afford to spend any more time fighting to get reimbursement. We are also seeing significant pre-approval denials by HMOs and other insurers of any new drug use outside the standard profile for a particular disease. Physicians are saying the constant battles with insurance companies for the right to use current drugs or biologicals are not worth the costs in their time, in the time of their staffs, and in the delays and denials they are experiencing in reimbursement. In some cases it is simply easier to use older, if less effective, drugs. Indeed, in some cases, given the amount of time that current reimbursement problems require, they simply cannot maintain a practice and battle for the drugs they desire to use. Off-Label Use and New Indications Reimbursement policies over the past 18 to 24 months have become more stringent as insurers have faced increasing competition, a decline in

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The Changing Economics of Medical Technology profit margins, and a significant loss of reserves. In order to minimize outlays, payers have established stricter standards for payment. One of these standards is the FDA label—the package insert specifying the clinical indications for which FDA has approved the drug. This is the same set of indications listed in the Physician's Desk Reference. Whether the FDA agrees to it or not, the FDA's label has become a standard that some insurance companies are stating is their exclusive standard for what is or is not “experimental.” FDA staff members have been quite forthright in saying that they do not expect every legitimate clinical use of a drug to be listed on the label. Indeed, one of their frequently cited bulletins states that FDA recognizes that standard clinical use of any drug will exceed the labeling (6). The prospect that all off-label uses will be reclassified as “experimental” is frightening to oncologists because 46 percent of all the chemotherapy they now deliver is off label (Figure 4.1 ). Thus, about half of all cancer care is off-label (5,7). Parenthetically, often physicians did not have the foggiest idea what is or is not on the label. This is not surprising since they are far more used to consulting the medical literature than the package insert drug label.Table 4.1 illustrates the eight top cancer drugs and the percentage of their off-label use in an audit of 165 oncologists' offices. Another way to understand the implications of these findings is to consider the potential number of treatments that could be denied if only the drugs FIGURE 4.1 Percentage and total annual sales of approved versus unlabeled usage of eight common chemotherapy drugs, 1986. (Note: Dollar amounts are in millions. Source: Association of Community Cancer Centers.)

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The Changing Economics of Medical Technology TABLE 4.1 Out-of-Package Insert Use for Eight Common Chemotherapy Agents Agent Unlabeled Diagnoses 1986 Projected Treatment 1986 Percent Unlabeled Use Adriamycin G.I./digestive cancers Other malignancies 68,182 35,444 15 Cytoxan G.I./digestive cancers Lung cancers Other malignancies 5,972 182,384 30,200 22 Fluorouracil Lung cancers Metastatic adenocarcinoma Metastatic prostate cancer 33,310 12,584 28,650 4 Methotrexate G.I./digestive cancers Ovarian cancers Other malignancies 72,834 18,912 28,688 12 Mutamycin Rectal cancers Lung cancers Breast cancers Ovarian cancers Other malignancies 56,364 16,782 82,200 3,420 12,142 84 Oncovin G.I./digestive cancers Breast cancers Lung cancers Other malignancies 16,132 133,348 151,304 71,900 41 Platinol G.I./digestive cancers Lung cancers Metastatic thyroid cancer Malignant melanoma Metastatic uterine cancer Other malignancies 7,528 38,344 4,336 2,580 3,432 34,596 68 Vepesid G.I./digestive cancers Ovarian cancers Brain cancer Hematologic malignancies 2,540 4,556 660 33,722 31 SOURCE: Association of Community Cancer Centers

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The Changing Economics of Medical Technology that were being used for their FDA labeled indications were reimbursed. In the case of the drug Oncovin, there would be 372,000 denied treatments. Congress, in the recently repealed National Catastrophic Act, recognized three compendia (the U.S. Pharmacopeia, the AMA's Drug Evaluation, and the National Hospital Formulary) as a more appropriate set of standards for payment. These compendia are means by which scientists and physicians evaluate drugs from information in the scientific literature the FDA cannot use at the time of labeling. As a consequence, the U.S. Pharmacopeia's Drug Information volume includes 25 percent more uses for FDA-approved drugs than are listed by the basic FDA label.1 The compendia's review panels have long served to establish the standard acceptable use of most drugs. Insurance companies defend their reliance on the FDA label by claiming that they are confused about which current therapies are legitimate. If they cannot count on the FDA label, what can they rely on? Moreover, they add, why not just insist that the other indications also be approved by the FDA? There are several very practical reasons why these notions are impossible to entertain. First, under such a scheme the FDA would face an enormous deluge of supplemental new drug applications (NDAs) if the agency had to review all current therapies that are standard practice and add them to the label. The task would crush the already overworked and understaffed agency. Second, pharmaceutical companies would need to sponsor lengthy and expensive clinical trials required by the FDA for each clinical condition for which the drug is used. Since many of these drugs have now gone generic, there would be no incentive for a pharmaceutical company to sponsor the trials. The costs of multiple trials is so high that many drugs would remain with obsolete labels. Third, there is no congressional mandate for the FDA to review supplemental NDAs in a timely fashion. In addition, since the FDA is currently behind in reviewing regular NDAs, a flood of supplemental NDAs would easily cripple the system. Proposals to undertake massive FDA review of currently accepted therapies might also be unacceptable on the grounds cancer patients would needlessly die while providers waited for the review process to recognize the effectiveness of drugs that have been standard treatment for years. Oncologists are experiencing repeated payment denials when they use new drugs or use a drug for a new indication. At the minimum they are experiencing lengthy delays before payment, with significant time required to reverse denials. Some oncologists report delays of 18 to 24 months (8). I have been particularly vocal about the policies of some insurance companies which insist that FDA labeling be required for every use before they are willing to pay. The Blue Cross and Blue Shield Association has stated that it will now “consider ” payment for cancer chemotherapeutic drugs that are being used in off-labeled indications (9). The Blues have heralded this recent pronouncement as an “advancement” in their policy, but, in fact, it is

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The Changing Economics of Medical Technology a significant step backward. They wish to move away from the three compendia that Congress recommended in the Catastrophic Act, perhaps because new indications are being listed too regularly. On the other hand, the Health Insurance Association of America has issued a more enlightened policy recommending that its over 300 member commercial payers recognize the three compendia for determining the legitimate use of drugs (10). Payment for Investigational Therapies For years the medical benefits contracts of nearly all payers, public or private, contained clauses prohibiting reimbursement for patients receiving investigational or experimental therapies. However, this nonpayment clause was not enforced until recently. Improvements in computerized insurance claims systems and increased use of utilization review have allowed payers to more easily identify patients receiving experimental therapies. Following the Health Care Financing Administration 's (HCFA's) precedent, other third-party payers have focused on the expensive hospitalizations of patients in clinical trials and denied these claims. Many, if not all, of the charges associated with a clinical trial are being disallowed. The trend toward more expensive new therapies will increase as more potent and potentially toxic agents are being developed to treat unresponsive cancers. This means that experimental and, later, standard therapies will include more intensive and expensive inpatient stays in the hope that life-threatening cancers can be eradicated by heavy-hitting chemotherapy. Treatment IND and Group C categories, used by Medicare to identify experimental drugs that should receive payment, are designations from which insurers are veering away. They fear that other drugs will be reclassified into one of these two categories, forcing payment. Treatment INDs and Group C drugs are experimental drugs not yet approved by the FDA but which the FDA and NCI regard as a significant improvement over existing therapies. Many of these agents later receive full approval. Interestingly, the HCFA has agreed to pay for these experimental therapies, even though it states that there is a congressional mandate that it cannot pay for experimental therapies. There has also been a series of recent pronouncements by third-party carriers about research. Before the National Committee to Review Current Procedures for Approval of New Drugs for Cancer and AIDS (the Lasagna Committee), the Health Insurance Association of America announced a new policy that recommended payment for Group C and Treatment IND drugs (10). Representatives stated their belief that, at least in some cases, patients in clinical trials should have their costs reimbursed. However, at the same meeting the Blue Cross and Blue Shield Association stood by its official policy of not paying for Treatment IND or Group C drugs, nor for any experimental therapies (9). The HCFA representatives have said that they

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The Changing Economics of Medical Technology are interested in paying for as little as possible, given their interpretation of the original Medicare law, which they believe precludes use for experimental therapies. Therefore, there have been rumors that they would like to stop paying for Group C drugs. EFFECTS OF REIMBURSEMENT POLICIES ON INNOVATION The Impact of the PPS on Clinical Research With the institution of the DRG payment system, denials of payment for patient care costs associated with clinical research have grown (8). Denials of payment for patients on research protocols are sufficiently frequent to imperil the entire enterprise of clinical research (11). John W. Yarbro and I expressed concern that new clinical trials were being halted by hospital administrators because their high costs exceeded allowed DRG payments. DRGs are formulated to provide reimbursement for today's average treatment, not the potentially higher costs of experimental treatments given in clinical trials. Thus, major cancer centers have experienced major cost overruns for new therapies that hold significant promise for prolonged survivals and cures but that are far more expensive than today's average treatment (12, 13). Hospitals have continued to be involved with cancer research, but some hospital administrators have closed down clinical research programs because they felt reimbursement was inadequate (14-17). Obviously, we cannot investigate just those technologies that are less costly than current technologies. Efficacy should be our only concern during the research phase. Cost may vary widely when a new technology is in actual use. As many studies have indicated, new technologies are likely to be more expensive in the experimental stage. In addition, a new technology may substitute for less efficacious standard therapies. A related problem is that the HCFA has a national policy that precludes payment for patients on research-protocols, a policy that has been enforced erratically. While the HCFA states that it is a national policy, it allows local intermediaries to determine if, how, and when it will be enforced. As a by-product of their own financial problems, more and more of these intermediaries are seeking to determine whether patients are involved in experimental therapies, especially if the patient care costs are higher than expected, so that they can disallow the physician and patient care costs. We have a very interesting national research policy that one can characterize only as schizophrenic. We have one group, NIH, with a congressional mandate to promote research. We have a second group, HCFA, with a congressional mandate not to pay for congressionally mandated NIH clinical research. The implications of such contradictions are serious.

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The Changing Economics of Medical Technology Decreasing Effective Patent Life Loss of reimbursement effectively shortens pharmaceutical patent time and lowers return on investment, threatening investment in cancer innovations. Projections of the economic return on a product will be significantly overestimated if the manufacturer assumes (which many do) that the product will be used for all its major indications throughout its patent life. Clearly this does not happen. While one or two indications might be put on the label, it seems unlikely that all will be worthy of full approval-oriented clinical trials. Furthermore, payment for those indications not on the label will be denied by insurers. Thus, total usage will be less than anticipated. Moreover, given the incentives to add every indication to the label, FDA is likely to receive an ever-increasing number of supplemental NDAs. As the stack grows, so will delays in processing and reimbursement. Thus, instead of having the full patent life for all indications, a manufacturer may be faced with three-quarters of the patent life for one indication, half for another, and none for the remaining indications. Pressures to curtail and constrain payment for new and experimental drugs effectively shorten the patent life and pose an additional long-run obstacle to R&D investment. Certainly, the impact of low use of new products needs to be taken into account in calculating the costs of R&D. This problem will be compounded if the pharmaceutical industry must also spend additional dollars to conduct NDA-quality clinical trials to receive additional labeling for new indications. Whereas previously research conducted through the national cancer research groups was sufficient to promote widespread use of a cancer drug for a new indication, this will not matter nearly as much as receiving FDA approval for a particular indication. This, I think, will lead to a deluge of NDAs that will pile up at FDA and will cause companies to concentrate on developing pharmaceuticals for those types of cancer with the largest numbers of patients. Research on drugs for less common cancers will come to a virtual halt. Most cancer trials would focus almost exclusively on the Big Four: breast, colon, prostate, and lung cancer. The drug interferon provides an example of this phenomenon. There are 12 indications for interferon, but the pharmaceutical company went for its initial FDA labeling indication for a rare form of cancer called hairy cell leukemia because of impressive clinical evidence of efficacy for this cancer. Fewer than 500 people are diagnosed with hairy cell leukemia each year. This was a typical strategy: go for approval and initial labeling for a small select patient population for which you have very solid clinical data demonstrating improved efficacy, and then go for other indications or allow the NCI cooperative research groups and the scientific literature to document the additional uses. Unfortunately, insurance companies decided that hairy cell leukemia was the only indication for which they would pay for interferon. This is the first

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The Changing Economics of Medical Technology major variance from the customary system of allowing physicians to use drugs for indications off the official label. The result is history. Pharmaceutical companies that made interferon were amazed at how slowly this widely publicized product was put into use. Even now the use of interferon is well below its reasonable market potential. In response to a question from a pharmaceutical representative about why interferon is not being used more frequently, a leading oncologist said he did not have the time to fight for reimbursement every time he was going to use the drug. The product manager asked about a new service his company had set up to assist in getting payment for denied claims. The physician said it still took significantly more of his and his staff's time every time he prescribed the product and it was unbearable to be disputing claims denials constantly. The pharmaceutical representative remarked, “This is where 75 percent of our use is lost!” In fact, a number of reports indicate that payment still is being denied for the labeled indications of interferon. Obviously, this pharmaceutical manufacturer will not use the smallest indication the next time around. Moreover, we should expect that treatments for many medium-size or small patient population clinical conditions will never be researched actively. The research and labeling process will be too expensive, and the return on the investment is likely to be small. As drugs enter their generic phase and prices drop quickly, use for new indications that emerge in the literature will not be disseminated very quickly or very widely. Since generic manufacturers are unlikely to see the financial value of research to document additional indications, these new uses for established products will never be labeled by the FDA and therefore will never be reimbursable. GROWING DISINCENTIVES TO PROVIDING STATE-OF-THE-ART CARE Clearly, the incentives have changed. It costs time and money for an oncologist to use the latest therapies, and it costs more time and money to participate in clinical trials. Many oncologists are involved in these clinical trials, despite their complex and time-consuming nature, because they are rewarded by the prestige, satisfaction, and peer recognition that such pursuits provide. Many of them also wish to offer their patients the best, most modern therapy and still believe that research offers the best hope for patients and the future of cancer care. But the incentives for oncologists to continue doing this are shifting. Now, they have a better chance of surviving economically if they use less effective, older technologies. By eschewing new, potentially controversial practices, oncologists will spend less time on the phone with the insurance company clerk and will be more likely to receive complete and timely reimbursement. Incentives for physicians now dictate waiting 24 to 36

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The Changing Economics of Medical Technology months to use a new therapy—until it has become more accepted by insurers. Furthermore, there are strong incentives to practice in an office setting, separate from the hospital, even though high-quality, multidisciplinary care is more easily available when the medical oncologist practices in the hospital, in close contact with radiation therapists and surgeons. Even rural outreach programs, providing oncology clinics in small communities, are being hit hard by the current reimbursement pressures. In addition, primary care physicians and general internists are increasingly reluctant to refer cancer patients to specialists because they perceive their job to include gatekeeping—to mitigate against the use of specialists and costly technologies. This strategy often results in the patient missing a therapeutic opportunity for cure because of lack of expertise or delay in time of referral. One really needs to be a specialist to keep up with the literature in this information-intensive, rapidly changing field of oncology. Moreover, oncologists are far more likely to treat a patient aggressively, inducing potentially toxic reactions, to increase the chance of a cure. Thus, whereas some of the older chemotherapeutic regimens may be somewhat effective and somewhat less toxic, there are opportunities for aggressive management with greater potential that a general practitioner is far less likely to know of or be willing to try. There are also significant disincentives for oncologists who wish to participate in clinical trials. Their patients, their hospitals, and even their fees are likely to be denied if a third party audits the records. Pharmaceutical companies soon will recognize a whole new series of disincentives to support innovation. Reimbursement may effectively shorten patent life. Larger indications are likely to be the first, and perhaps only, subjects of research and use. Since smaller indications are likely to have modest or small paybacks, we may see the pharmaceutical industry disinclined to sponsor the necessary research to obtain FDA labeling for less common types of cancer. PROSPECTS FOR THE FUTURE Given this set of disincentives and dynamics, I predict that the pace of research will slow. The diffusion of new technologies will also slow. Ironically, we are retraining a group of physicians, who were trained during medical school to be innovators, to become technologic laggards. We are giving them direct disincentives to provide innovative care. It is also likely that we will see poorer care delivered as oncology programs become more disaggregated. Of course, the key question is, “What can be done?” On the pessimistic side, we have less money for research, less money for care, more insurance company financial problems, and no easy solutions. The FDA certainly has explicitly resisted being involved in regulating clinical practice and setting standards for reimbursement. With all its other mandates, it seems unlikely

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The Changing Economics of Medical Technology that the FDA would become the authority on effective and appropriate use of medicines. Nor does it desire this role. The schizophrenia in Congress regarding more research but less money together with competition among providers has tended to destroy the maintenance of timely, integrated multidisciplinary care. That leaves us with only a few things we might consider as possible solutions. First, with public pressure and congressional and state legislation, we could advocate the universal adoption of the three drug compendia as standard references on indications that are acceptable for payment. These compendia are more complete and current than the FDA label. However, legislation citing the three compendia as standard references would be insufficient since, as it is written, the growing numbers of self-insured firms would be exempt. Reaching this group will require enormous public awareness on a series of very complex issues that must be conveyed to corporate leaders or their third-party administrators. We might try to remedy congressional schizophrenia on the issue and pass legislation that says that the HCFA should pay for the patient care costs associated with NIH and FDA clinical trials. It is also worth educating people that clinical trials offer the best care for current and future patients. It should not be too difficult for people to understand that support for medical innovation is an investment in everyone's health and future. Lastly, there are unusual solutions that could be tried. For example, the President could sign an international treaty, as one group has suggested, that would recognize statements of drug approval from regulatory bodies in other countries. This would lower the work burden on our own FDA and reduce the duplication of research and evaluation efforts that occur worldwide. Without some of these novel solutions, we are likely to see increasing problems for practitioners, patients, and innovators in the years ahead. NOTE 1. K. Johnson, Director of Research, United States Pharmacopeia Drug Information: personal communication, September 1989. REFERENCES 1. 1991 Budget Estimate: National Cancer Institute, 1989 . 2. Howe RF . Blue Cross ordered to cover treatment . Washington Post , April 19, 1990 . A1, C5 . 3. Mortenson LE. Cancer Diagnosis Related Groups . Washington, D.C. : Association of Community Cancer Centers , 1985 . 4. Mannisto M. Readers report increasing reimbursement constraints: survey . Oncology Issues 1989 ; 4 : 19-23 . 5. Mortenson LE. Audit indicates half of current chemotherapy users lack FDA approval . Journal of Cancer Program Management 1988 ; 3 : 21-26 .

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The Changing Economics of Medical Technology 6. Food and Drug Administration . New angina drugs . FDA Bulletin 1982 ; 12 : 4-5 . 7. Mortenson LE. Audit indicates many users of combination therapy and unlabeled . Journal of Cancer Program Management 1988 ; 3 : 33 . 8. National data show significant denials for the treatment of cancer with alpha interferon . Oncology Issues 1989 ; 4 :11-12 . 9. Tennenbaum D. Statement of the Blue Cross and Blue Shield Associationbefore the National Committee to Review Current Procedures for Approval of New Drugs for Cancer and AIDS , Washington, D.C. , October 25, 1989 . 10. Plocher D. Statement of the Health Insurance Association of America before the National Committee to Review Current Procedures for Approval of New Drugs for Cancer and AIDS , Washington, D.C. , October 25, 1989 . 11. Yarbro JW , Mortenson LE. The need for DRG 471—protection for clinical research . Journal of the American Medical Association 1985 ; 253 : 684-685. 12. Antman K , Schnipper L , Frei E. The crisis in clinical cancer research: third-party insurance and investigational therapy . New England Journal of Medicine 1988 ; 319 : 46 . 13. Mortenson LE , Young JL , Ney MS. Variations in cancer DRG profit and loss by hospital size and region of the nation . Journal of Cancer Program Management 1988 ; 3 : 16-19 . 14. Davis C. The impact of prospective payment on clinical research progress . Journal of the American Medical Association 1985 ; 253 : 686-687 . 15. Horn SD , Sharkey PD. A study of patients in cancer-related DRG . The Journal of Cancer Program Management 1986 ; 1 : 8-14 . 16. Katterhagen JG , Mortenson LE. Clinical research patients generate significant losses under diagnosis related groups (DRG) . Seminars in Oncology 1984 ; 11 : 330-331 . 17. Lee C , Mortenson, LE. Clinical research patients exceed costs of cancer patients within the same DRG category . Cancer Program Bulletin 1984 : 6-7 .