The question is no longer whether or not Medicare will do it but when and how. The initiation of a National Coverage Decision (NCD) for Dendreon’s Provenge® has triggered a lot of discussion about the cost of cancer drugs, and whether they are worth the benefit. But, is the Provenge NCD an indicator of things to come? It is being speculated that Medicare will cover a very defined patient population in an attempt to limit the off-label use and cost of Provenge. But the Social Security Act, which defines what Medicare will cover, requires coverage of all “reasonable and necessary” treatments and contains no provision for pricing considerations. This post will review why Medicare must begin to control cancer drug costs, the restrictions they have been under thus far, how they are controlling costs today and how they will most likely control them in the future.

In the US, manufacturers have been able to freely price therapeutics with little concern that a premium price could affect demand. Although Medicare is required to pay for cancer drugs regardless of price, third-party payers are also mandated by many states to cover cancer treatments and they usually follow Medicare’s lead regarding coverage. This broad coverage of cancer drugs coupled with a lack of price regulation has created a situation where the risk that a drug company could price a product too high has, thus far, been minimal. The major concern of drug company management is the negative P.R. that a company and the industry could receive for setting prices too high and running the risk of reaching a “tipping point”—the point at which the price of a drug is so high that it activates Congress to make changes (on behalf of the public) to the Social Security Act to control drug pricing.

Oncology drug prices have been increasing rapidly and threaten to bankrupt the Medicare Trust Funds. As illustrated in Figure 1, the monthly cost of oncology drugs at approval is on the rise.

Figure 1. The Rising Price of New Oncology Drugs. Source: Peter B. Bach, M.D., M.A.P.P. N Engl J Med. 2009;360:626-633.

In addition, Medicare Part B spending has grown from $3 billion in 1997 to $11 billion in 2004—a 267% increase—and, according to Peter Bach, MD, in a NEJM article, cancer costs have risen faster than many parts of healthcare. Insolvency of the Medicare Trust Funds and the rapidly increasing share of the Federal budget assigned to Medicare is an issue that concerns both Republicans and Democrats.

Today, Medicare and the governments’ ability to control cancer drug costs has been limited by the laws, regulations and court rulings described in Table 2. So how does Medicare manage drug costs?

Source: Peter B. Bach, M.D., M.A.P.P. N Engl J Med 2009; 360:626-633.

One mechanism they have is using the National Coverage Decision to limit utilization by strictly defining the patient population eligible for coverage as is anticipated with the Provenge NCD. Another mechanism is using the Least Costly Alternative (LCA) rule. Medicare has defined “reasonable and necessary” to encompass cost considerations when products are classified as “clinically interchangeable”, they’ve been able to set a reimbursement rate that is equal to the weighted average price of the “interchangeable” products or the price of the least expensive product.

Medicare has been able to effectively use the LCA to manage the price of LHRH agonists for prostate cancer for many years. Though there have been some legal challenges to the use of LCA I expect Medicare will increase its use of it.

In an attempt to control their budget, I believe that Medicare will become more aggressive in defining products as clinically interchangeable in order to implement LCA pricing. The government has set aside $1.1 billion for comparative effectiveness research towards this effort. It appears that this research will provide the impetus for broadening the interchangeability language in the Social Security Act and give Medicare the ability to reimburse at the LCA rate for many more products regardless of their composition, class, or mechanism of action.

More will be revealed as the details of the comparative effectiveness studies to be conducted emerge, but there is no doubt that cost controls will eventually impact oncology. Government agencies as well as taxpayers are at their tipping point of what can be considered affordable healthcare, and the NCD for Provenge is the first indication of things to come.

David is a veteran of the cancer business with 15+ years of experience commercializing several well known oncology therapeutics. He is currently a consultant and lives in San Diego. Please send your questions and comments to davidguy1@gmail.com.

By David Guy

Dendreon

On July 1st CMS announced that Dendreon’s Provenge^® will undergo a National Coverage Determination (NCD). Quoting CMS:

We are opening this national coverage analysis to determine whether or not autologous cellular immunotherapy is reasonable and necessary under sections 1862(a)(1)(A) and/or 1862(a)(1)(E) of the Social Security Act.

Although Medicare carriers will cover Provenge while the NCD is ongoing, this news led to a 6% drop in Dendreon’s share price to $30.42 and represents a 45% fall since the $55 high when Provenge was approved in May. It is hard to imagine that a product that improves median survival by 4 months is not reasonable and necessary. The Social Security Act which governs CMS coverage does not include any provision that cost-effectiveness is a determinant of coverage. However, with the limited tools they can use i.e. NCD, CMS tried to limit coverage of Provenge when they saw the threat of a new budget busting drug get approved. CMS has indicated that a preliminary decision regarding coverage will be made March 30, 2011 and that a final decision will be made June 30, 2011.

The move by CMS to institute an NCD with Provenge claim it was triggered by informal inquiries. In general, companies avoid applying for an NCD and seek CMS coverage via the regional Medicare Carrier (companies contracted by CMS to process claims) when the first claims move through the system.  Coverage decisions for new drugs at the Medicare Carrier are made by the carrier’s Medical Advisory Committee (MAC). MAC is composed of physicians who decide whether a treatment is reasonable and necessary. Since drug costs are borne by CMS and not the carrier, MAC decisions are a more straight forward route to gaining coverage.

I would be very surprised if Dendreon made the “informal” inquiry about an NCD. More than likely, the cost of Provenge has landed on CMS’s radar—$93,000 for a course of treatment. The NCD gives CMS the ability to strictly define which patients are covered. The Provenge pivotal study included patients with metastatic disease and evidence of progression, but the study excluded patients with liver, lung or brain metastasis and patients with moderate to severe pain or those who were using narcotics to control pain.  In other words the study  excluded patients with rapidly advancing disease.

Barring any radical reinterpretation of “reasonable and necessary” we can expect the NCD decision to be positive, but coverage will likely be limited to this clearly defined patient population—a patient population that is still very large and capable of driving block-buster revenue for the company.  Consider that there are over 2 million men in the U.S. living with prostate cancer and 32,000 annual deaths. Treatment of only 11,000 patients with Provenge can achieve up to $1 billion in annual sales. Buying call options expiring in 2012 might be something to consider.

Antisoma

The biotechnology company, Antisoma, has been on a wild ride recently—their share price fell from £31.75 pounds  to £8.00 on March 29th after reporting disappointing news about its lead product ASA404 in NSCLC after a futility analysis showed that it would be unable to improve survival. The stock is currently at £5.75 and the market cap is £36 million.

However, what drew my attention to the company were the results of its compound AS1411. In a randomized, multicenter, phase 2 trial comparing AS1411 at 2 dose levels with cytarabine vs cytarabine alone in relapsed and refractory AML,the Complete Response (CR) rate and CRp  Complete Response rate without platelet recovery in patients was a total of 19% and 21% in the AS1411 containing arms vs 5% in the cytarabine alone arm. The study was small with only 59 patients divided between the 3 arms for the assessment of efficacy. A survival benefit was also suggested when the complete responders were examined for survival duration. The addition of AS1411 to cytarabine did not increase toxicity.

Considering the drop in Antisoma’s share price, the positive indications from AS1411 and the low market cap could present a buying opportunity. Antisoma is looking to license the product out pending the completion of a randomized phase 2b study of AS1411 +/- cytarabine examing duration of responses and survival. According to my sources there is interest from several pharma companies to make a deal.

David is a veteran of the cancer business with 15+ years of experience commercializing several well known oncology therapeutics. He is currently a consultant and lives in San Diego. Please send your questions and comments to davidguy1@gmail.com.

By David Guy

This past ASCO in Chicago was something like the 18th or 19th one that I have attended, and it has grown from a few thousand physicians to this hectic weekend with over 25,000 attendees. When I first started in this industry, there were maybe a dozen chemo agents for the treatment of all cancers and now there are so many ibs and mabs I have trouble keeping track of them all. It could be that I’m getting old but thank goodness for Google and OBR Radar. Despite the advances in oncology and the number of new products approved there have been remarkably few products that have made a significant difference for patients with metastatic disease. We still consider an improvement in overall survival (OS) in terms of weeks or a few months a major treatment advance. Hence, a huge unmet medical need and opportunity exists for any new treatment that can improve upon the efficacy of existing regimens. The search for new rising stars is the most exciting part of the meeting for me. They also represent investment opportunities.

For this year, I think without question the data demonstrating that ipilumimab (BMS) can improve survival for melanoma patients by almost 4 months was the biggest news. Not only because it is the first treatment that has improved survival in a phase 3 trial for this patient population, but also that it works by activating the immune system. What also struck me is the significant effect maintenance use of a monoclonal antibody can have on patients. Results from the PRIMA study evaluating Rituxan® maintenance therapy in untreated follicular lymphoma, and data from the GOG-0218 trial evaluating maintenance Avastin® in first-line ovarian cancer were both positive.

There were several worthy rising stars coming from smaller companies. The most notable, are the results from Ziopharm’s (ZIOP) phase 2 PICASSO trial in which 67 soft tissue sarcoma patients were randomized to receive doxorubicin + palifosfamide or doxorubicin alone. The results appear pretty remarkable with the initial analysis of median PFS demonstrating a hazard ratio of 0.43 (P=.019) in favor of the palifosfamide arm in a very difficult to treat patient population. However, the stock took a significant fall today from $4.85 to $3.52 when the company announced that the FDA is rejecting PFS as an adequate endpoint for an SPA—ouch. Presumably the agency wants a survival endpoint. The company has reported a favorable survival trend in the phase 2 data but there is certainly more risk in the stock now.

Sunesis (SNSS) reported promising phase 2 studies of their agent voreloxin in patients with AML. I was particularly impressed with the high complete response rate (CR) in 69 refractory patients: 17 of the 20 responding patients achieved a CR. Encouraging results were also reported from phase 2 studies in first-line AML and refractory ovarian cancer. This is an interesting stock to watch, but I would caution investing in it. Why? In short—no control arm. It is very difficult (at least for me) to get a clear picture of how this patient population would respond receiving standard chemotherapy. I do not understand why companies choose not to conduct randomized phase 2 studies in this day and age.

Another interesting ASCO story is that of Delcath (DCTH)—the manufacturer of a proprietary system called PHP (percutaneous hepatic perfusion) which delivers chemotherapy to isolated organs. A phase 3 study of PHP was conducted in 93 melanoma patients with liver metastasis who were randomized to receive high dose melphalan with the PHP system or the physician’s choice of Best Available Care (BAC). Hepatic-PFS was the primary endpoint. Median H-PFS was 245 days in the PHP arm vs. 49 days in the BAC arm (P<.001).

Based on the initial reporting of these results on April 21st, DCTH stock rose to a 52-week high of $16.45 and was at $14.65 the Friday of ASCO. The company also reported that the OS was 298 days in the PHP group vs. 124 days in the BAC arm. After the above results were presented at the meeting, their stock fell to $10.83 at the close on Monday. What happened?

The presentation reported that OS was not statistically significant, but also noted that most patients in the BAC arm eventually crossed over to PHP. A debate then raged in the blogosphere about what this all means. DCTH has stated that H-PFS is in their SPA agreement with the FDA. Will the lack of significant OS put the approval at risk? It appears that this question is the basis for the stock falling. It is not surprising that OS was not significant because it was a secondary endpoint that the trial was not powered to detect—H-PFS was the primary endpoint.

Since DCTH’s SPA with the FDA is based upon H-PFS as the primary endpoint one would expect that approval will be likely—but not so fast. For the FDA to approve PHP with a single trial, the results must demonstrate a clear benefit. In my experience this means the primary endpoint must meet a P<.01—which H-PFS exceeds in this trial. However, will the agency continue to view H-PFS as predictive of a significant clinical benefit for these patients when faced with no survival benefit? From what I have read, the symptoms and complications of liver metastasis are very severe and an extended H-PFS should be a significant clinical benefit to these patients. The drop in the price of DCTH stock may represent a buying opportunity.

The ASCO meeting this year certainly was not disappointing and I will discuss more rising stars in my next post. Please send your questions and comments to davidguy1@gmail.com.

David is a veteran of the cancer business with 15+ years of experience commercializing several well known oncology therapeutics. He is currently a consultant and lives in San Diego.

Ins and Outs of Compensation in the
Multi-Disciplinary Setting

By John Watson

By having all relevant caregivers in one room prospectively reviewing cases, multidisciplinary cancer clinics make it possible to impact patient care from the very beginning. Getting all those separate caregivers into the room in first place, however, remains a significant challenge. At the 2009 Cancer Center Business Summit in Dallas, Texas, attendees were given an overview of the different ways of incentivizing physicians to dedicate the time and energy required in the multidisciplinary setting.

Physician Compensation Models
According to Mano Mahadeva, CPA, executive director of North Texas Operations at US Oncology, there is no perfect model for physician compensation. However, all good models share certain characteristics, such as promoting teamwork amongst colleagues, being easily understandable and flexible enough to accommodate new specialties.

There are three basic compensation models: an equal split model, a full production model, and a hybrid of these two. Equal split models have the advantage of being easy to understand, and since everyone receives the same payment, do not require complex formulas. However, this payment method can be seen as a disincentive to productive physicians.

“If I see 20% less patients than my colleague, well that could be an issue in the practice,” said Mahadeva.

Conversely, full production models reward physicians for increased efforts, but rely on complex, potentially time-consuming formulas to do so. Additionally, this model can create an overly competitive environment.

Hybrid models are the most popular, according to Mahadeva, because the full production element recognizes added value, while the equal split aspect compensates for other issues. Splits for this model are usually in the range of 60/40 to 70/30.

Choosing Models
Bruce Cutter, MD, a medical oncologist and hematologist at Cancer Care Northwest (CCNW), shared his group’s experience choosing between these different models. CCNW was a group of six medical oncologists with a compensation model based on gross productivity, until the late 1990s when they decided to add additional specialties.

“We couldn’t do things based on gross revenue any longer, because the contractual allowances for each specialty are all different,” said Cutter. “Medical oncologists might get 50 cents for every billed dollar, while radiation oncologists get 28 cents, and surgeons get 25 cents.”

CCNW eventually settled on a fairly simple model using a 60% productivity/40% equal share split of practice income. This system is applied to the specialties within the practice based on total specialty professional net revenue, taking into account varying contractual allowances. Income is then split within each specialty based on the chosen systems of the doctors in these subgroups. For example, the medical oncologists decided to split their pool of money based on productivity, while the radiation oncologists are sharing their money equally.

Models for Hospital-Employed Groups
Doctors looking into hospital-based medical groups will typically encounter a handful of specific features to any potential employment offer, according to Jessica Turgon, MBA, senior manager at ECG Management Consultants, Inc. There continues to be a component of a base salary within a compensation plan, whether it is 50% or 80%, but it is now offered with an incentive payment based on a production component using relative value units related to a physician’s work (WRVUs). However, as hospitals “also want to hold physicians responsible for some of the expense categories that they wouldn’t get under a WRVU model,” said Turgon, they’re also implementing an expense or budget component (i.e., clinical expenses). Many hospitals also use quality measures to incentivize physicians—where performance as a group or system may also be measured and rewarded.

Lastly, Mark Krasna, MD, medical director of the Cancer Institute at St. Joseph Medical Center in Towson, Maryland, took attendees through the four employment models for hospital-based cancer centers.

• The full-time employment model, in which doctors are employed by the cancer center, is the simplest model from a legal standpoint; however, it is difficult to convince some physicians to come on as full-time employees.

• In the private practice model, the practice is integrated into the cancer center, so that all patients are seen in the multidisciplinary space. This is also considered a simple model for hospitals, and doctors are willing to participate because it allows for increased patient volume and improved practice through prospective case review.
• Joint venture models, in which the cancer center owns the facility jointly with a private practice, are more common with radiation oncology and surgical centers, and less feasible for medical oncology.
• The part-time employed/contracted full-time equivalent model, in which doctors are paid at fair market value according to the Medical Group Management Association, is the most legally complex of the four and requires doctors to find a way to be efficient operating only in set block of time.

According to Krasna, no matter what system an oncologist chooses to join, simply being part of a multi-disciplinary care system can yield significant rewards, not only in revenue but in improving patients’ quality of care.

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No Magic Bullets for Drug Price Reform:
Notes from ASH and SABCS

By Neil Canavan

ASH: The High Cost of an Unmet Need
Andrew Pollack, a journalist from the New York Times, set the 2009 ASH in motion with his front-page, opening-day article, “A Fortune to Fight Cancer”, which highlighted the record-setting price of Folotyn. Approved in September ‘09, Folotyn, manufactured by Allos, Westminster, CO, is indicated for the treatment of peripheral T-cell lymphoma. According to clinical trials, the drug is adept at shrinking tumors, and thereby extending progression-free (but not overall) survival—so, to be clear, the patient may well be more comfortable, but will not live longer. And the price? It’s roughly $30k a month.

The article appeared just as several Allos/Folotyn posters were being presented at ASH, and poster presenters hastily deferred all questions from the press to the nearby-stationed, Monique Greer, Vice President of Allos’ Corporate Communications. “Well, it did generate a lot of awareness for a small company,” Greer observed, in the sense that there’s no such thing as bad publicity. “But once we got past the headline it enabled us to get into the discussion about how rare this disease state really is, and the fact that it has a very poor prognosis.”

Greer also suggested an angle to the economics concern: the drug requires little of supportive care; it’s administered on an outpatient basis; and only requires a few minutes in an I.V. push. She further pointed out that doctors were more interested in the drug’s mechanism of action and response rates, rather than its price. What Greer says she hears from patient advocates is that they understand what’s at stake in drug development.

Judy Jones, President of the Cutaneous Lymphoma Foundation, is by no means a cheerleader for drug prices based on whatever the market will bear, but in a telephone interview she was sympathetic to certain arguments. “We’re dealing with a new treatment for a disease that has no FDA approved treatment. Until this drug came along these patients didn’t have anything. Do I wish that these [new] drugs were cheaper? Absolutely. But I don’t know how to determine how much is too much, and I don’t want to threaten new drug development.”

A day after Pollack’s article appeared in the Times, a seemingly prescient talk at ASH, titled, “The Cost of Health Care: Balancing a Patient’s Right to Care with the High Cost of Some Drugs and Procedures” suggested that the issue of drug pricing might be addressed. But that was not the case. What the speaker, economist Paul Ginsburg, President of the Center for Studying Health System Change, Washington, D.C., did discuss were those cost-drivers common to the healthcare system as a whole where, in general, many highly effective drugs are now, or soon will be, off-patent.

This is not the case, of course, for cancer treatments. “I quickly realized during the course of the meeting that in oncology, one of the biggest issues is drug pricing,” he said, and he’s wary of the competing interests in trying to bring down costs. “All spending is someone else’s income,” Ginsburg said, adding that oncologists have long standing conflicts of interest because they sell drugs directly to the patient, and are, in fact, competing with pharmacies when it comes to oral vs. I.V. medications. “In the industry these are called self-referral incentives,” he said, “like if a physician orders a CT scan, and s/he just happens to also own a CT scanner.”

SABCS: The Race Heats Up
Healthcare reforms are coming, to be sure; but just how elegant or crude the reforms will be may depend largely on the body of the reformers. “The oncology community would do itself a favor by taking this issue seriously instead of constantly excepting the idea that anything that works at any price has to be good,” said Hal Burstein, MD, PhD, Dana-Farber Cancer Institute, Boston, MA. His comments came after the SABCS presentation of promising data for a combination treatment of Herceptin (trastuzumab) and Tykerb (lapatinib) in the setting of metastatic breast cancer (Abst. #61)—a regimen that will run a minimum of $15,000 a month, for a payoff of just over four months of increased survival.

Burstein is also concerned with the very language used in the reporting. He responded to the headline-reporting of data for the so-called PARP inhibitor, BSI-201. “The Times said, ‘drug improves survival’, which is true, it improves by two months, meaning, May vs March.” But some patients misunderstood the language, thinking they now had a shot at an actual cure, which could easily drive demand for something that is only minimally effective.

Also reported at SABCS were results from Avastin’s AVADO and RIBBON trials, where success was measured, as with Folotyn, as gains in progression-free survival. Matthew Ellis, MB, PhD, Director of the Breast Health Program, Washington University and Barnes-Jewish Hospital at St. Louis, MO, said “we need to be careful about approving drugs that don’t improve survival, yet cost $50k to $60k a year.”

Gabriel Hortobagyi, MD, Director of the Breast Cancer Research Program at the M.D. Anderson Cancer Center, Houston, TX, concurs: “Multiply [that] by the number of breast cancer patients out there, and pretty soon we’re talking about real money.” And money begets money. Profits are put back into research that hopefully will lead to more drugs, and more profit. But therein lies part of the problem. “In oncology,” said Hortobagyi, “we do a huge amount of research on drugs, and very little research in biomarkers,” the biological signals that could tell you if the drug is working, or, before the drug is even given, if it even has a chance of working. He also said that “to do healthcare reform right, competitive efficiency [of treatments] has to be provided with a reasonable funding mechanism.”

As the clinicians wait for these assays to determine who might actually benefit from a given drug, the philosophical task of defining benefit must be addressed. “That is the debate to be had by everyone,” asserts Mothaffar Rimawi, MD, Baylor College of Medicine, Houston, TX. The community of physicians needs to comment on it, and the community of patients and patient advocates also need to comment on it. “What is the dollar value we put on a month gained, or the quality of a life briefly improved? This is a very sensitive discussion. Is your position that of having a loved one who is a patient, or are you a policy maker who has a limited number of dollars to stretch?”

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