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Healthy Skepticism Library item: 19874

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.


Publication type: Magazine Article

Mansfield P
Pushing expensive new drugs
Consuming Interest 20010


According to Dr Peter Mansfield inappropriate use of expensive new drugs harms all players involved and results from ‘signal failures’ in the system. Here he suggests some options options for improving the signals, including redesigning the incentives.

Full text:

Sometimes new drugs are so much better than the alternatives that they are worth the extra cost. But consider the example of new group of drugs called dihydropyridine calcium channel blockers used for blood pressure. For the past five years I have been concerned that these new drugs may be less effective than older alternatives. My fears have been confirmed by an overview of nine clinical trials published recently in a leading medical journal: The Lancet. The new drugs appear to be less beneficial than the old drugs but cost more. Despite that, the new drugs are prescribed by doctors much more often!

There are many similar examples. Sometimes drugs are used when non-drug interventions or doing nothing would be better. A subtler problem is the use of expensive drugs that are slightly better than cheaper alternatives but the advantage is so small that it is not worth the extra cost. The common theme is the use of new expensive drugs rather than more cost-effective alternatives. Drug companies can get higher prices for new drugs because patents can outlaw competition and because many people believe that newer is better. In fact, newer drugs may be inferior because less is known about long-term effects or how to use them appropriately.

Inappropriate use of drugs harms patients; it also harms the other players involved. Taxpayers’ money is wasted. Expensive new drugs are the main cause of the unsustainable exponential growth of the Pharmaceutical Benefits Scheme (PBS) from $1.18 billion in 1989-90 to $3.07 billion in 1998-99. Total expenditure on health has grown little. Consequently, drugs are diverting resources away from hospitals and community care. That harms health professionals and makes governments unpopular.

In the short term, drug companies may appear to gain from overuse of expensive drugs. However, inappropriate use of drugs reduces the value that Australia gains from drug companies. If the companies produced more value then they would earn a greater justification for receiving more payment. Also, if drug companies did more to improve the health of our people and thus the capacity to pay them.

Signal failures
Drug companies, doctors, hospitals and government health officials are all involved in the process. All try to do their best in response to the payment and information signals they receive. Unfortunately, a lack of reliable signals from each other leads to outcomes which are less than optimal for all. The fault lies not with any of the players but with the system as a whole.

There are many ‘signal failures’ that help explain why new, expensive, inferior drugs are used more often than older, cheaper, superior drugs.

Payment signal failures often arise from PBS subsidies. The PBS deserves support because it has enabled access to drugs for Australians without the cost barriers that impact disproportionately on the poor and the sick in other countries. However, PBS subsidies favour more expensive drugs by reducing price differences. Sometimes there is no price difference at all for the patient despite larger differences in what the taxpayer pays. The result is that doctors and patients do not have accurate price signals to inform their choices. The freedom to access an unjustified expensive drug costs you decreased access to other health services without you knowing.

Another hurdle concerns information signals. For example, few doctors or patients are aware that many newer drugs for blood pressure may be inferior to the older drugs. There are two main reasons for this lack of awareness. First, doctors and patients are unable to assess for themselves the main aim of blood pressure treatment – which is to delay heart attacks. They do not know on what date a heart attack would have occurred if they had used an old drug instead of a new one. Personal experience with drugs often does not provide reliable information about benefit.

Second in my opinion, many doctors have not received adequate signals from their main sources of information about the newer drugs being inferior. Many doctors rely in drug company funded sources of information. This is in part because tax payers have paid much more to drug companies than to sources of alternative information for doctors. Is it reasonable to expect drug companies to fund dissemination of information that would reduce their sales incomes by millions of dollars?

Drug company funded information sources usually promote the newer, more expensive drugs. In my opinion the main reason is that drug companies are paid more for selling larger volumes of newer more expensive drugs than for the alternatives.

This occurs regardless of whether increased sales of expensive drugs are good or bad for health. The impact of sales on health is rarely measured. Drug companies do not get strong accurate payment signals about whether or not they are doing good or harm to health. By contrast, they get strong payment signals from sales. Like all companies, every drug company has a legal obligation to maximise profit for shareholders, as well as self-interest in maximising income for staff and for the company as a whole. If it does not perform competitively, and grow exponentially, it will be taken over by a more aggressive competitor. Selling more expensive drugs is more profitable. Consequently, drug companies have little choice.

For all drugs there is a limited group of people who have an indication (diagnosis for which doctors believe a drug is beneficial) for which that drug is cost effective. Currently, drug companies get no extra incentive for ensuring that all the people who need the drug actually get it. However the more they sell, including to people who do not need the drug, the more money they make. This is why Australian and French studies of drug salespeople have found that they ‘widen the indications’ to influence doctors to prescribe the drugs for people for whom the drugs are not appropriate. At the National Medicines Symposium in August 2000, Alan Evans, CEO of the Australian Pharmaceutical Manufacturers Association, disclosed that his members spend approximately 30 per cent of sales on promotion. This is consistent with a 1997 survey that found that the international average is about 35 per cent. Consequently it appears that of the $3.07 billion Australian taxpayers paid for drugs in 1998-99 via the PBS, plus unknown $ millions via state government public hospitals, about $1 billion was spent on drug promotion.

Improving the signals
The PBS has already introduced important initiatives to improve the signals. There are now cost signals for patients via co-payments and Therapeutic Group Premiums. However, it is important to find other ways to improve the system because increasing the costs would impact disproportionately on the poor and the sick.

More accurate information signals for doctors about drugs are being provided by the Australian Medicines Handbook, the Australian Prescriber, Therapeutic Guidelines and the National Prescribing Service. Hopefully these sources will continue to improve and will be used more often than they are now. Healthy Scepticism Australia will be available for the general public soon. Studies in Australia, Europe and the USA have consistently found that doctors who are more sceptical about information from drug companies are better at judging drugs. Consequently, the hypothesis that “teaching scepticism to doctors may be effective for improving prescribing” deserves research.

Drug companies deserve better payments signals. The capped annual contracts used in New Zealand make sales over an agreed target unprofitable. Under that system company staff visit over-prescribing doctors to encourage them to be more prudent in the interests not only of patients but also the company. Use of the capped annual contracts would be simple but may lead to new distortions. It may be better to give drug companies the opportunity to earn a significant part of their income via bonus payments for meeting quality targets that measure their contribution towards improving health. Such schemes could be revenue neutral for the taxpayer if conventional payments were reduced to save money for the bonuses. However, all players including drug companies would benefit more if improvements in drug use were achieved – this would justify more expenditure on drugs than would have occurred otherwise.

One approach being tested in the UK is to have an outcome guarantee where payments to the company depend on whether the drug performs as expected to improve health. Yet for many drugs it would be difficult to find appropriate easy-to-measure health outcomes. Consequently, measuring appropriate drug use may be better. For example, bonuses could be given depending on what percentage of a random sample of patients taking the drug had a correct indication. Unfortunately, for many drugs it would be difficult to confirm or deny that someone on treatment had the correct indication.

It may be better to pay a random sample of doctors to indicate what they would recommend in response to case scenarios describing borderline cases. Research in New Zealand has shown that case scenarios on paper can be quite accurate for predicting actual prescribing with real patients. Drug companies could be paid bonuses depending on how many doctors recommended the drug for the scenarios where it is cost effective but not for the others.

Another option would be to address geographical inequality by paying bonuses according to whether sales in each postcode area are distributed in accord with know variations in the rate of the indications. Similarly incentives could be given for companies that reduced, rather than exacerbated, the variations in prescribing between doctors.

These options could provide a strong payment signal rewarding drug companies for sending more reliable information signals to doctors. In conclusion, if inappropriate drug use can be explained as resulting from information and payment signal failure then we would do well to turn our attention and support to ideas for improving the signals including redesigning the incentives.


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