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Winners And Losers From The Zaltrap Price Discount: Unintended Consequences?

February 20th, 2013

Soon after Sanofi Pharmaceuticals’ Inc. August 2012 launch of the biologic drug ziv-aflibercept (brand name Zaltrap) into the U.S. market, its price triggered an unusual act of defiance on the part of oncolAogists. Physicians from Memorial Sloan-Kettering Cancer Center stated in a New York Times op-ed piece that they wouldn’t prescribe the drug because it cost twice as much as Genentech’s Avastin (bevacizumab), a competing biologic drug with similar expected clinical outcomes for colorectal cancer patients. In response, Sanofi said they would reduce the price of the drug by 50 percent.

Doctors and prescribing hospitals stand to benefit hugely from Sanofi’s pricing move, while payers and patients do not, at least over the next several months and likely much longer.

To understand why involves questions about pharmaceutical price setting and the arcane world of ‘buy and bill’, the system for physician-administered drugs under which doctors first buy drugs at one price and then submit for reimbursement for the drug to a third party payer (and the patient). The system as applied in fee for service Medicare, the public insurer of adults aged 65 and older and the largest insurer of cancer-related treatment in the U.S., is illustrative of larger concerns. In 2009, Medicare spent approximately $11 billion on physician-administered drugs.

Below, we explain how this “buy and bill” pricing system works, and how it operates in the case of ziv-aflibercept. We also examine the policy implications of the ziv-aflibercept episode and offer some thoughts on how Medicare could improve the way it sets pharmaceutical reimbursement rates.

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