Monday, July 24, 2006

Off-label prescribing and rewards based on observed value

by Aidan Hollis
NY Times, July 22 2006 has a story by Alex Berenson -- who is doing very worthwhile reporting on drugs -- on off-label prescribing.

“The case has put the spotlight on the murky financial relationships between drug companies and the physicians they use to promote their medicines. Companies cannot directly advertise drugs for purposes not approved by the Food and Drug Administration. But getting drugs prescribed for unapproved uses can increase a drug’s sales, so companies often skirt the rules by sponsoring seminars where doctors are paid to make presentations promoting their drugs, including the “off label” uses.
For doctors, these and other payments they receive for discussing drugs can be very lucrative. Dr. Gleason acknowledges that he received more than $100,000 last year alone from Jazz Pharmaceuticals, which makes Xyrem, the narcolepsy drug he has promoted.”

There is nothing illegal off-label prescribing – doctors are entitled to prescribe drugs for a condition even when official labeling does not include that condition – but it is not legal in most jurisdictions for a company to promote a drug for off-label purposes.

Off-label prescribing is one way that firms and doctors find out about the possible uses of a medicine. I have the impression that it is particularly common for drugs treating mental health.
When drugs are used off-label the firm makes profits, and this gives incentives for promotion of off-label uses. This is particularly problematic if the off-label uses are in fact of low value, comparatively. For example, suppose that drug A is approved for condition X, and is reimbursed accordingly. But a doctor prescribes it for condition Y, which already has an available treatment. Perhaps drug A is slightly better for condition Y, or perhaps not. The price, however, basically relates to the use of drug A for condition X.

An insurer may refuse to reimburse, since not for the approved use, or it may reimburse at a price which has little to do with the value of the drug in use Y.

How would a prize system treat off-label prescribing? The obvious approach is simply to reimburse according to incremental therapeutic value, given the evidence on the uses for which the drug has been prescribed. If the evidence on the value of the drug for treating condition Y is weak, the reward for the times the drug was used for condition Y would be accordingly small, but need not be zero. The trick is that the reward is determined based on the value of the drug in the way that it has actually been used.

This highlights a general advantage of a reward system: it rewards based on observed therapeutic value, rather than based on a price which is set before it is observed how much value the drug actually generates.


Dean Baker said...

Do prescriptions indicate the purpose for which a drug is being prescribed?

3:02 PM  
Aidan Hollis said...

No. However IMS HEALTH does survey prescribers to find out what they are prescribing drugs for.

For some insurers, even though the prescription does not reveal information on the purpose of the drug, the insurer may know the characteristics of the patient. For example, if a patient is not known to have cancer, but an expensive cancer drug is prescribed, the insurer might balk at paying for the drug.

5:43 PM  

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