Sunday, April 16, 2006

Diagnostic Testing: The Next Big Expense Thing?

Big pharma might be about to get some company at both the bedside and the bottom line.

Thursday's New York Times contained an intriguing article discussing "a new wave of sophisticated genetic or protein tests that are starting to remake the diagnostics business." The article, "A Crystal Ball Sumberged in a Test Tube", is interesting in several respects but I'm fascinated, once again, by the unabashed emphasis placed by the developers of these tests on price and profit margins.

A sampling from the article:

Traditionally regarded as a low-profit, poor cousin of prescription drugs, diagnostic tests are emerging as high-profit products in their own right. Test developers are "trying to do what pharmaceutical companies have done with their drugs," said Jondavid Klipp, managing editor of Laboratory Industry Report, a newsletter.
...
"They are raising the tide for everyone else," Jorge Leon, the president of Leomics Associates, a diagnostics consulting firm, and the acting chief science officer at Orion Genomics, which is developing tests to detect cancer. He said Genomic Health had done a "fantastic" job of validating its test using clinical trials and then of "packaging it in a Starbucks package at a high price."
...
Asked about the price, Rob Shovlin, Aureon's executive vice president for sales and marketing, replied, "It's less than the Genomic Health price of $3,500." He added, "Patients have given us feedback that they'd be willing to pay more than that to have this information."
...

The high prices that the developers and marketers of these diagnostic tests are charging (routinely in the several thousand dollar range), and the willingness of patients to tolerate these high prices is, unfortunately, nothing new.

Like their cousins in big pharma, diagnostic developers justify the price of their test on the basis of how much they believe they can extract from patients. As a result, the price for both patients and insurers quickly becomes unmoored from the actual development costs, as well as the efficacy, of the test. Patients, for their part, demonstrate little or no price sensitivity, allowing test providers to continue to ratchet up prices.

Since I've been down this road fairly recently, I'm not going to rehash all my concerns here. But I remain somewhat baffled by it all...

2 Comments:

Blogger Potentilla said...

Patients in the UK demonstrate little price sensitivity because they don't pay for the drugs, the state does (or sometimes an insurance company). What proportion of Americans pay for their own drugs/tests? (I am ignorant about this).

If the answer is "lots", then maybe we need to look at the role of the medical profession. I guess few doctors are wiling to say "you could have this but it may not be worth it" (a) because doctors, on average, like to be doing something not nothing (b) because of the fear of being sued and (c) occasionally because of more murky money-oriented reasons. If doctors don't say that, how are the majority of patients to know whether their drugs/tests are crucial or marginal?

Mon Apr 17, 02:56:00 PM EDT  
Blogger Tim Kanwar said...

First, a disclaimer: I'm no expert on the inner workings of the health
care / insurance system in the States or elsewhere.

That said, irregardless of whether it is the patient or some other
payer (e.g., the NHS in Britain, or large managed care plans in the
States), I wonder if the "cure at all costs" mentality isn't still
problematic.

I think that the reason why doctors (and insurers - be they public or
private) are unwilling to say "you could have this but it may not be
worth it" might derive from the perceived attitude of some
patients/consumers that no price is too high when it comes to a cure.

I agree that the reasons you mention contribute to a lack of price
sensitivity, I'm just not sure they are sufficient as explanans for the problem of skyrocketing drug costs. Even if patients
do know the relative efficacy of tests, that doesn't preclude them
from irrationally valuing the ends toward which those tests are
directed (i.e., health, longevity, etc.) to the point where they
decide tests are "worth it" at (effectively) any price.

Even if patients were forced to internalize 100% of the cost of their
care, that wouldn't necessarily impel them to adopt more rational
views vis a vis end-of-life and medical treatment issues. It might
well be a start, but the larger question of why we are so determined
to dodge death without considering the costs of that maneuver deserves a closer look.

Wed Apr 26, 01:31:00 PM EDT  

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