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Insight & Intelligence™ : Oct 8, 2009

The Underappreciated Cost-Saving Potential of Personalized Medicine in Health Reform Debate

The current draft includes comparative effectiveness research but does not provide nearly as much funding as is needed for CER.
  • Harry Glorikian

From the headlines over the past few months, it appears that Washington is overlooking the value of personalized medicine in reducing healthcare costs. This is quite unfortunate, as the potential for savings is significant. Here are three examples of cost-saving diagnostics and some thoughts on how personalized medicine relates to health reform legislation under consideration, and what it may mean for stakeholders.

Genomic Health’s Oncotype Dx is a test with compelling cost-saving potential. It is used to predict chemotherapy benefit for patients who have node-negative, estrogen receptor positive (node-, ER+) breast cancer. By averting unnecessary chemotherapy, the test has been shown to save about $2,000 per patient. Extending this cost savings to the roughly 100,000 new cases of node-, ER+ breast cancer in the U.S. each year, this test could save the U.S. healthcare system up to approximately $200 million a year or about $2 billion over the 10-year time horizon under legislative consideration.

Another test frequently mentioned for its cost-saving potential is XDx’ Allomap. This noninvasive test is used instead of biopsies in the management of heart transplant patients after surgery. The total potential cost savings is estimated at roughly $20 million per year (about $12 million for payors as well as approximately $8 million for hospitals and transplant centers). Over the 10-year time frame being considered by legislators, the test could lead to savings of about $200 million.

These examples of cost-effective diagnostics are but a prelude to an era of cost-effective personalized medicine. The real potential is in better targeting expensive drugs to those who will benefit from them, thereby both cutting wasteful expenditure and decreasing adverse events associated with treating nonresponders.

For example, Genentech/Roche’s Avastin costs $50–$100,000 per year of treatment but works in fewer than 50% of patients. Given that Avastin may generate $12 billion in peak sales, this low rate of efficacy translates into billions of dollars in misdirected healthcare spending. A test for Avastin response, such as that in discovery by BG Medicine, could save the system as much as $6 billion per year if all nonresponders could be removed from the treatment pool. Assuming that a test of this sort is introduced at the beginning of 2013 and is 100% adopted, cumulative savings of $40 billion could be realized by 2019.

This scenario, in which a drug with high sales but low efficacy is targeted by diagnostics companies, may become a pattern in the near future, multiplying cost savings.

Healthcare Reform

The federal government has a clear interest in personalized medicine. A recent report entitled “Paving the Way for Personalized Medicine” by Michael Rugnetta and Whitney Kramer, both from the Center for American Progress, nicely summarizes the involvement of various government entities in personalized medicine. The report describes programs in the FDA, National Institute of General Medical Sciences (NIGMS), NIH, CDC, Centers for Medicare and Medicaid Services (CMS), American Medical Association (AMA), and the Agency for Healthcare Research and Quality (AHRQ).

Further, President Obama is no stranger to personalized medicine; in 2007, then-Senator Obama sponsored the Genomics and Personalized Medicine Acts of 2007 and 2008, which sought, in part, to unify the federal government’s personalized medicine efforts.

Scientia, however, has been able to identify only one significant piece of health reform legislation that promotes the role of personalized medicine. The draft released September 22 by the Senate Finance Committee incorporates the Senate comparative effectiveness research (CER) bill, known as the Patient-Centered Outcomes Research Act of 2009 (S. 1213), which seeks to establish a private, not-for-profit entity known as the Patient-Centered Outcomes Institute (PCOI). Through the PCOI’s activities, the bill promotes personalized medicine in three ways.

First, CER conducted by the PCOI will use methods including “primary research such as randomized clinical trials, molecularly informed trials, and observational studies.” Second, CER will “be designed as appropriate to take into account the potential for differences in the effectiveness of healthcare treatments, services, and items as used with various subpopulations, such as…groups of individuals with different co-morbidities, genetic and molecular subtypes, or quality-of-life preferences.” Third, “members appointed to the methodology committee shall be experts in their scientific field such as health services research, clinical research, comparative effectiveness research, biostatistics, genomics, and research methodologies.”

Taken together these provisions give personalized medicine a home in the context of comparative effectiveness research.
While these provisions hold promise for the future of personalized medicine, a material impact is far from certain. With proposed government funding for the PCOI ranging from a mere $10 million to $150 million each year, the institute may not have the fire power to be a significant driver of personalized medicine.

What is more, the provisions mentioned must survive the Senate Finance Committee, the Senate floor, a compromise with the House of Representatives, as well as the President’s veto pen to become law. Finally, for the potential cost savings to materialize, the PCOI must execute on the vision it is charged with realizing.

Too Soon to Tell Whether Reform Will Bolster Personalized Medicine

With personalized medicine, the question has never been “if” but rather “when.” Personalized medicine, particularly diagnostics that allow better use of drugs, will decrease costs and improve outcomes in a material fashion in the coming decade, creating a number of opportunities and threats for each stakeholder to carefully assess.

The key question is whether government action, particularly health reform, will accelerate this trend, thus magnifying the urgency of this strategic calculus. Given the uncertainties summarized above, we conclude that it is still too soon to tell. That said, it is clear that forces in both the private and public sectors are aligning around a future in which healthcare markets are segmented by molecular subtypes, and stakeholders should not allow themselves to be caught flat-footed.