The Cost of Prematurity – A Different Perspective: Or, How to Raise Health Care Costs Without Really Trying

April 4, 2011

In November 2010 we released an issue brief on the cost of prematurity in Michigan. In that issue brief we noted that in 2008/2009, Blue Cross and Blue Shield of Michigan spent a total of more than $46 million on preterm infants in the first year of life. The average cost of medical care for a preterm baby in its first year of life was almost $42,000, compared to just over $4,000 for a full-term infant. In 2007, the March of Dimes published similar national numbers that set the medical cost of a preterm birth at $49,000.

The cost of prematurity is of considerable concern, and so are the health consequences. Data in our issue brief and elsewhere highlight the relationship between prematurity, infant mortality, and developmental delays.

Finding treatments that can mitigate the risk of prematurity is clearly desirable, both to individuals and society at large.

And, indeed, such treatments exist. In 1956, the FDA approved a drug called Delalutin, developed by Squibb for another purpose and later shown to reduce prematurity. Squibb withdrew this drug from the market in 1999, for business – not safety – reasons.

Since that time, patients have been able to obtain the drug from pharmacies that compound it themselves under the label “17 OHP.” But not all pharmacies compound drugs, so individually compounded drugs are somewhat less accessible than drugs produced by pharmaceutical manufacturers.

Because of the accessibility issue, the March of Dimes pushed the FDA to classify 17 OHP under the orphan drug statute to give pharmaceutical manufacturers more incentive to produce it.

On June 25, 2010, the FDA published a notice that because Delalutin was withdrawn from the market for reasons not related to safety, it would therefore authorize an abbreviated new drug approval (ANDA).

According to the FDA notice, “ANDA applicants must, with certain exceptions, show that the drug for which they are seeking approval contains the same active ingredient in the same strength and dosage form as the ‘listed drug,’ which is a version of the drug that was previously approved. ANDA applicants do not have to repeat the extensive clinical testing otherwise necessary to gain approval of a new drug application (NDA). The only clinical data required in an ANDA are data to show that the drug that is the subject of the ANDA is bioequivalent to the listed drug.”

In other words, compared to the cost of a new drug discovery, the cost of ANDA approval would be fairly minimal.

On February 4, the FDA gave an exclusive contract to K-V Pharmaceuticals for the drug Makena (essentially the same drug as Delalutin) under the “orphan drug” provision. This approval gives K-V exclusivity on production of the drug for seven years.

The 20-week cost of treatment using 17OHP is about $300 – a true boon to women at risk of having a repeat premature birth, and a clear cost savings to society.

So, what is the cost of Makena? The wholesale price first published by K-V for 20 weeks of treatment was $29,000.

That’s right: $29,000 for Makena – essentially the same drug as 17 OHP but at 100 times the cost.

What does that cost difference mean to society? Some have estimated the number of women that could benefit from this drug at 139,000 women each year. The cost of treating all 139,000 women using 17 OHP would be $41.7 million per year, with a potential total medical cost savings of $519 million. In contrast, the cost of treating all these women with Makena would be $4 billion – a net increase in costs to society!

Rarely in the world of health policy does one see such a strong and clear public policy debacle: a law intended to increase the availability of drugs could result in reduced access for patients and increased cost to society. The New England Journal of Medicine and a number of consumer advocates exposed this pricing in articles framed as the “unintended consequences” of the orphan drug law.

Since the New England Journal article, K-V has been feeling the heat. First, the company offered “hardship relief,” and to subsidize copays for this drug (a great marketing strategy but nothing that brings down the unnecessary cost to society, or addresses the fact that employers would still be picking up the bill, making health care coverage unaffordable for some). Unhappy patients started a Facebook page entitled, “Shame on You, K-V Pharmaceutical and CEO Greg Divis.” Now Senators Sherrod Brown and Amy Klobucar are demanding federal hearings.

On March 30, the FDA announced that despite KV’s request, it would not take enforcement action against pharmacies that continued to compound 17 OHP. The next day (April 1), K-V lowered the cost of the drug from $1,500 to $690 per treatment (no, truly – not an April Fool’s joke). That brings the cost of a course of treatment “down” to $13,800 – now, only 50 times higher than the cost of the compounded drug!

This is not the only instance of this kind of pricing in the pharmaceutical world. It just happens to be extremely clear cut and getting the kind of visibility no one in this business wants. Ultimately, there is a much bigger issue here about the laws and regulations around pharmaceutical pricing: laws intended to promote drug discovery that have now become anti-competitive and, in too many cases, turned into protectionism.

So, when we talk about ways to reduce the rate of increase in health care spending and improve health at the same time, Makena and K-V should be the case study we remember!