Sherry Glied, PhD
Two researchers have challenged the notion that money can be saved by packaging medications in sizes that conform more closely to patient weight and dosing needs.
Distributing oncology drugs in larger or smaller portions would not lead to significant savings because the raw materials cost of a drug is not a key factor in how much pharmaceutical companies charge, said Sherry Glied, PhD, dean of New York University’s Robert F. Wagner Graduate School of Public Service, and Bhaven Sampat, PhD, associate professor of Health Policy and Management at Columbia University.
Drug manufacturers have many marketing and development costs associated with drugs and, in many instances, those factors outweigh the chemical costs, they said. Furthermore, producers enjoy virtual monopolies on the production of certain drugs. This means that they will price them according to what the market will bear, Glied and Sampat wrote in a blog for Health Affairs,1 a web-based magazine.
“A drug manufacturer holding a patent seeks to price its product at the highest price consumers are willing to pay for it. The willingness of chemotherapy consumers to pay for a drug doesn’t depend on their body weight and how many milligrams of the drug they use—it depends only on whether the optimal course of treatment will improve and extend lives or not,” they wrote.
Their argument was in response to a study published in BMJ March 1 of this year that argued that oversized drug packaging results in large quantities of leftover drugs that cannot be used.2 Also, lead author Peter B. Bach, MD, director of The Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center, and his fellow researchers alleged that oversized packaging has given rise to various fraudulent practices. They said that the cost of drugs could be reduced if packages and their contents are sized according to actual need.
The authors of the Health Affairs blog agreed with Bach et al that chemotherapy dosing is based on body size and that drugs—particularly chemotherapy agents—are often packaged in quantities that exceed what is required. “Assuming the cost of an excess drug is proportional to the amount of drug in the package… the cost of the wasted drug is very substantial,” Glied and Sampat wrote. “It is wrong, however, to assume that production cost is proportional to package size. That’s because much of the cost of the product—product development, marketing, distribution, testing, packaging, labeling—is entirely or nearly invariant to unit size. The cost of an additional unit of the product itself, the marginal cost, is usually quite low relative to these fixed costs,” they said.
The researchers gave the example of a large Starbucks container that holds 67% more coffee than a smaller size but costs only 29% more. They said the same principle applies in the retail industry, where different sizes of a particular style of clothing are priced the same.
If required to package their drugs according to patient need, manufacturers would still adjust pricing for maximum possible gain, Glied and Sampat wrote. They said such a requirement could actually lead to a decline in production efficiency as producers generate and distribute multiple sizes of drug packages. “Overall, the costs of production would rise, while consumers would see little change.”
Bach and his colleagues estimate that up to 33% of drug package contents are going to waste. They said that, in 2016, the waste will amount to $1.8 billion in pharmaceutical company revenues from just the top 20 cancer drugs. They said that oncology practices benefit from higher prices charged for excess quantity because they mark their drugs up accordingly. They also alleged that some physicians split the contents of oversized vials among different patients and bill each for a full vial. Some space out doses of a drug in order to use more vials per patient, the BMJ study authors said.
Bach and his fellow researchers suggested that waste could be minimized by requiring manufacturers to distribute drugs in dose appropriate sizes, refunding the cost of leftover drugs, and implementing safe vial sharing practices, so that unused content does not need to be thrown away.
The authors of the Health Affairs blog acknowledged the problems of waste and high drug prices; however, they said the solution from Bach et al was “based on a questionable set of assumptions” and is “unlikely to reduce the costs that matter to patients and payers.”
Glied S, Sampat B. Would a wider variety of vial sizes reduce the cost of chemotherapy? Not likely. Health Affairs. Published May 11, 2016. http://healthaffairs.org/blog/2016/05/11/would-a-wider-variety-of-vial-sizes-reduce-the-cost-of-chemotherapy-not-likely/. Accessed May 16, 2016.
Bach PB, Conti RM, Muller RJ, Schnorr GC, Saltz LB. Overspending driven by oversized single dose vials of cancer drugs. BMJ. 2016;352:i788.