Healthy Skepticism Library item: 15513

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: news

Goozner M.
Is It a Warranty or a Discount?
Gooznews.com 2009 Apr 23
http://www.gooznews.com/archives/001396.html

Full text:

There’s a big difference between the two. A warranty guarantees results if the product doesn’t work. A discount simply lowers the price.

This morning’s story in the New York Times suggesting some drug companies are starting to offer “pay for performance”-style guarantees to drug purchasers caught my eye because it confuses the two. Take one of its examples, for instance, which involved Actonel (risedronate), an osteoporosis prevention drug jointly marketed by Procter & Gamble and Sanofi-Aventis.

To fend off generic competition, the companies are offering to pay for any fractures suffered by women who take the drug. This could prove costly for the companies, right? It costs $30,000 to treat a hip fracture and $6,000 for a wrist fracture, according to the story.

But now let’s look at how many older women would still suffer fractures even after taking the drug for a year. According to this analysis out of Great Britain, about 0.4 percent of older women who took risedronate still suffered hip fractures (compared to 0.6 percent who took another drug). That’s about one hip fracture for every 250 women who took the $100-a-month drug.

About 2 percent of the women on the drug suffered far less costly non-vertebral fractures, some of which need treatment but many of which do not because they only show up on x-rays. But let’s assume all 2 percent suffered wrist breaks.

By doing the math on the fractures, it’s easy to see from the company’s revenue perspective how the income from the drug in this program clearly outweighs the cost of paying for the treatments. It costs 250 patients $1,200 per year or $300,000 in revenue to the company to prevent one hip fracture, which costs $30,000 to treat, and five wrist fractures, which cost another $30,000 to treat).

So the bottom line is the company spends $60,000 in treatments for every $300,000 in revenue it takes in. Such a deal.

Now, from a health system perspective it could be argued that preventing the pain and suffering of the one woman in 500 on risedronate who didn’t suffer a hip fracture or the one woman in 330 who didn’t suffer a “non-vertebral” fracture is worth the cost (these are the numbers needed to treat to prevent one of each event). However, several cost-effectiveness analyses conducted in Europe arrived at the opposite conclusion.

This German analysis, for instance, pegged the cost of gaining a single quality-adjusted life year from risedronate treatment at 50,000 Euros (about $65,000 at today’s exchange rate). That is higher than the generally accepted benchmark of $50,000 per QALY for what constitutes “cost effective” care.

So while it is nice to see that P&G and Sanofi-Aventis have offered to pay for fracture treatments, let’s be clear about the nature of the program. It is not an “outcome guarantee,” which was how it was described in the Times story. Rather, it’s a minor price discount that brings the price of the drug only slightly more in line with its true value.

(I’ve updated the math from an earlier posting to include all events and ascribed the highest cost possible to those events.)