# Friday, 30 September 2011
« The Law of Unintended Consequences | Main | Preventive Advocacy »

Intervention in a complex system always creates unanticipated and often undesirable outcomes.

In an editorial in the Washington Post, Dr. Hagop Kantarjian, a leading leukemia specialist from MD Anderson Cancer Center, described the life-threatening shortage of cytarabine, an irreplaceable drug necessary to cure patients with acute leukemia. The shortage is attributed to increased demand as well as some manufacturing delays. The reality is that the shortage is due to the law of unintended consequences and understanding the story of how and why it happened could be a life or death matter.

Cytarabine is a generic agent (and has been for many years) that is manufactured by three companies. In the typical situation when demand outstrips supply, you might expect one or all three of these companies to increase manufacturing capacity and increase price to cover the risk and cost of new facilities. That would be what General Motors or Hewlett Packard would do if there were a sustained higher than expected demand for their products. So why didn’t that happen with cytarabine?

The story actually begins about 7 years ago when Congress passed reform legislation that directed Medicare to adjust the system for reimbursement for chemotherapy and other drugs administered by physicians. The changes, intended to help control cost and utilization by minimizing the chemotherapy-related profit for oncologists, reimburses doctors for the average sales price (ASP) plus 6% to cover the acquisition cost as well as unreimbursed costs of stocking and handling the drugs. The system updates ASP quarterly based on data supplied by manufacturers with a 6 month delay between collection of sales data and change in the reimbursement rate. As a consequence of this system it became almost impossible for manufacturers to increase the price of their chemotherapy drugs to any substantial degree, creating de facto price controls. Because of the six month lag between changes in drug prices and increases in reimbursement rates any substantial increase in price would result in a 6 month period where the physician or hospital was “under water,” losing money on every dose of the drug. If the price were raised substantially it would become financially impossible for physicians to administer the drug to Medicare patients. Although other insurers are not bound by Medicare payment policy, they have readily adopted the ASP model for their customers. Thus, with only the good intention of controlling cost and utilization of chemotherapy, the government has unintentionally created price control on life-saving chemotherapy agents. As with any government price controls, the normal free market forces that match supply and demand are not in play and therefore we have shortages.

There is a potential solution: remove the de facto price controls on generic drugs in short supply. In a market such as the one that exists for cytarabine with three manufacturers, removing the price control and allowing the manufacturers to raise the drug to market-driven price levels for 3 to 5 years before restoring ASP pricing (based on then current sales price data) would provide appropriate incentives to invest in increased capacity. It might even attract additional suppliers into the market. The presence of competition will provide reasonable cost control and redefine the current value of cytarabine.

So why hasn’t Medicare instituted this simple fix? Probably for a variety of reasons. First, government is historically much better at regulating than deregulating. Second, and more important in the short run, the administrator of CMS does not have the authority under the current law to make these decisions. Finally, it is much easier to blame the shortages on circumstances than it is to address the underlying structural conditions that led to the immediate crisis.

In any event, this problem, as pointed out by Dr. Kantarjian in his editorial, requires immediate attention and action. Real people with potentially curable leukemia are going to die because of governmental decision making and the law of unintended consequences.

Rich Leff, MD

Thursday, 19 May 2011 18:53:22 (Eastern Daylight Time, UTC-04:00)
Thanks for sharing. What a plesaure to read!
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