Here’s an interesting look at the price of a single orphan medication: the rattlesnake antivenom CroFab, which has already been held up as an example of “everything that’s wrong with American health care”. Rattlesnake bites are not very common, so this is a very small orphan indication. The academic developers of the antivenom have gone back and taken a look at all the costs involved per dose of such a product:
Cost of antivenom was separated into phases of equine plasma production, manufacturing of bulk principle, lyophilization/fill/finish, clinical testing, wholesale, clinical use, patient billing, and insurance discount. The model assumed a hypothetical arachnid antivenom in a 10-year product development cycle, with cost of manufacturing distributed across sales of 500,000 vials per year in Latin America, and added costs of US clinical trials and infrastructure applied only among 2000 vials per year sold in the United States.
The final charge for such a spider antivenom would be expected to be about $14,000 per vial. Breaking that down, $1500 of that would be profit to the company selling it, and $1000 would be net profit to the hospital dosing it. $1000 is the cost of all the regulatory, marketing, and legal overhead. Clinical trials account for about $300 per vial. FDA fees account for about $300 per vial, and the wholesaler makes $250 along the way. As anyone in the drug business might expect, costs of manufacturing, etc. are an even lower part of the total: manufacturing costs about $9/vial, R&D in the antivenom field accounts for only about $1/vial, and the actual cost of the spider venom needed to make the stuff in horses is about two cents.
You’ll notice that we’re nowhere near $14,000 dollars yet. That’s because over ten thousand dollars of the sticker price come under “Hospital charges later discounted for contracted payers”. That is, not real costs, just a sort of MSRP figure. As the article concludes:
. . .this analysis demonstrates that well more than half of the astonishing hospital charges reported in the lay media are not true costs at all, but are instead attributable to the idiosyncrasies of the US healthcare finance system. These “discounted” rates help to focus public attention on an important issue, but they distract debate away from the actual costs underlying hospital charges. Last, and most important, in this analysis the lion’s share of expected payment on behalf of insured patients was attributable to analysts, attorneys, consultants, and business activities that set the US bureaucracy apart from its neighbors . . .
The authors go on to blame “for-profit” drug development, but I note that the hospitals, attorneys, and consultants that they mention aren’t the ones developing the drug. That Washington Post link above, on the actual rattlesnake treatment, reached similar conclusions:
But the other reason hospitals charge so much is the byzantine negotiating process that happens between hospitals and insurance companies to determine the final payout amount. In the case of the $143,000 snakebite in 2012, for instance, Scripps Hospital in San Diego explained that “it is important to understand that these charges are not reflective of what Scripps will be paid. At this time, the patient’s insurance company has not yet paid the bill, and Scripps is in negotiations with the company for the final amount.”
In many cases, a hospital bill isn’t actually a bill, but essentially an instrument in a complex negotiation between insurers and caregivers, with bewildered patients stuck in the middle. It’s difficult to know which charges are real and which ones aren’t, and which bills to pay and which ones to ignore. . .
(That article goes on, though, to mention the study claiming that medical debt is a big factor in many bankruptcies, but people should realize that this is almost certainly wrong). What’s accurate, though, is that these “legal fiction” bills and prices aren’t doing most of us any favors. They make drugs look far more expensive than they really are, which you’d think that the pharma industry might be a bit concerned about, and confuse almost everyone. I strongly suspect that if you asked a thousand people what percentage of US health care expenditures was spent on actual pharmaceuticals, that everyone would guess far higher than the real figure. It’s about ten per cent, last I saw. But it’s certainly a politically attractive ten per cent, isn’t it?