By Zack Buck
Last week, Dr. Salomon Melgen, an ophthalmologist who practices in North Palm Beach, Florida, was indicted on Medicare fraud charges. Melgen was charged with a variety of crimes, with prosecutors alleging he falsely diagnosed patients and falsified their files. Melgen’s name may be familiar. Last year, he was reported to be the provider with the highest total of Medicare Part B reimbursements in 2012, reportedly reimbursed by Medicare for more than $20 million, a substantial percentage of which was directly based upon his prescriptions for, and administration of, the drug Lucentis.
But the allegations against Melgen highlight a deeper challenge facing Medicare.
One of two drugs that are used to treat age-related macular degeneration (AMD), Lucentis is manufactured by Genentech, a wholly-owned subsidiary of the Roche Group.(Interestingly, Avastin—the other drug used to treat AMD—is also manufactured by Genentech.) Even though Lucentis has been approved by FDA to treat AMD and Avastin has not—completely reliant on physicians’ off-label usage—numerous recent studies have concluded that the two drugs are equivalent and highly effective, with one study referring to their effectiveness as “virtually identical.”
Medicare covers both of the drugs with few restrictions—Medicare is Lucentis’ largest single customer. But even though “the cost of producing the two drugs is similar,” the price per injection for each of the two drugs is radically different: Avastin costs $50, and Lucentis costs about $2000. According to HHS Office of Inspector General (OIG), “the final cost of a dose of Avastin is about 1 percent the cost of a dose of Lucentis, on average ($26 vs. $1,928).” Reportedly, “[d]octors choose the more expensive drug more than half a million times every year, a choice that costs the Medicare program … an extra $1 billion or more annually.” Indeed, Lucentis—by itself—made up “nearly 10% of the entire Medicare Part B drug budget” in 2010. But Medicare pays for both drugs with no notable limitation.
That Lucentis is more expensive makes it more profitable for Genentech—but also more profitable for Medicare’s physicians who prescribe it. Because physicians use the drugs in their offices, they are reimbursed by Medicare Part B for the average drug price plus six percent. According to this reimbursement formula, for each dosage of Lucentis administered, the physician’s profit from Medicare is $120; for Avastin, it is slightly more than $3.
Which brings the story back to Dr. Melgen in North Palm Beach. Absent the existence of allegations like those against Melgen, Medicare’s fierce protection of provider autonomy to decide which drugs are appropriate for their patients—decisions that may be influenced by profit directly realized by the doctor—hinders its ability to sensibly reign in drug costs. And there is no clear fraud-based answer to this challenge: DOJ cannot argue that highly-expensive clinical decisions, on their own, to administer Lucentis instead of Avastin are illegal or even abusive. Even in the midst of increasing attention to Medicare’s financial crisis, the Lucentis-Avastin challenge—outside of cases like Melgen’s—is one currently without any satisfactory regulatory answer.