Orthopedic generics: What can we learn from drug pricing?

Issue: April 2006

ByDouglas W. Jackson, MD

Rapidly rising prescription drug costs present problems for many patients and have led to three notable developments in the effort to hold down costs:

widespread consumer buying through Canada and Mexico;
incentives — even requirements — by insurers and employers steering patients to cheaper generic drugs; and
federal efforts to bring generic drugs to market faster once patent protection expires.

Douglas W. Jackson [photo] --- Douglas W. Jackson, Chief Medical Editor

The federal government has also introduced the greatest expansion in Medicare in years to address access to prescription drugs.

Will the orthopedic implants and device market one day go the way of prescription drugs?

Cheaper implants overseas

While we all know about the lower drug prices in Canada and Mexico, far fewer are aware of the lower prices for orthopedic implants and devices outside of our country. It still amazes me when I visit hospitals in other countries to find how much lower the pricing structure is for orthopedic devices and implants. Why? We hear the same arguments explaining these price gaps as those for prescription drugs, namely:

high development costs;
extra regulatory-related costs;
high U.S. manufacturing expenses; and
extra U.S. profits to help finance R&D.

In our current system, employers and the government primarily fund these extra costs. We all contribute, to varying degrees, to support new technology through our insurance premiums and out-of-pocket expenses. Financial pressures now strain that long-standing system, just as they have the prescription drug system. The government has started saying it will pay a set fee for a joint replacement — no more. More generally, employers are attempting to pass more costs on to employees though various means, arguing that health care insurance premiums are hurting global competitiveness.

Overall, the situation parallels that of health care generally — pressures to cut costs push against a constant demand for the latest services. Orthopedic surgeons and their patients want the benefits of the latest technology, too, and direct-to-consumer marketing only heightens patient awareness, just as it has for prescription drugs.

So what will happen in the field of orthopedic implants and devices as these pressures mount? Expect more demands for evidence-based data to document medical benefits and greater scrutiny in evaluating cost-effectiveness of new advances in a prosthesis or orthopedic appliance. And watch for payers to increasingly press surgeons to work within insurance reimbursement schedules.

Generic implants?

Already, hospitals are feeling the pinch. Medicare now pays a fixed fee for joint replacement to the hospital, which then takes the increasing costs for technologically enhanced orthopedic devices from their global reimbursement. For now, at least, this is the hospital’s problem and it affects their profit margin. One big question: Will we reach a point in orthopedics where third parties will reimburse only for generic appliances or devices, and if so, will only the patients with enough discretionary funds be able to afford the latest technology?

High-tech, high costs

One cannot easily predict the coming changes based on the past. The generic industry, for example, is now being tested by biotech drugs and also by the new bioengineering efforts and applications in orthopedics. Existing rules on what constitutes “generic” and when generics can be sold are being challenged.

Traditional generic drugs have been made basically by mixing chemicals. But new biotech applications use various cells to produce proteins and bioactive molecules. How do the generic applications and patent laws apply to such biologic approaches? Processes such as transplanting cells into a matrix grown outside the patient’s body have many new applications. Upregulating or suppressing specific cells within the body will likely be part of future treatments, and that will be expensive if our current patent system extends to include biological functions inside the body. Just look at the current costs for using any of the BMPs clinically.

And new technologies need not involve biologic processes in order to increase costs. A quick glance at some of the higher prices asked for “updates in technology” tells the story, eg, rotating platforms; hyperflexion; custom designs; flexible, more anatomic, improved-wear characteristics; etc.

Are we coming to a major crossroads? It is always easier and less threatening to give examples in other specialties. Look at some of latest treatments for diseases such as cancer, rheumatoid arthritis, infection and multiple sclerosis. The cost of drugs and treatments during certain disease phases and expressions can be several thousands of dollars per month to hundreds of thousands per year.

Yet, clearly there is a limit to what society can afford if everyone gains access to whatever technology exists. We as a nation have not started to decide what those limits will be or should be.

Given the graying of America, the new drug prescription benefit plan and the failu re of our leaders to deal with much needed health care reform, it will likely take a crisis before much gets done. Will generic implants and devices become part of the cost-lowering effort?