Searching for the Tipping Point in Drug Pricing

August 2015 Vol 8, Special Issue: Payers' Perspectives in Oncology - Health Economics
Caroline Helwick

At ASCO 2015, Leonard B. Saltz, MD, Chief of Gastrointestinal Oncology at Memorial Sloan Kettering Cancer Center, NY, was given a prominent soapbox from which to voice his concerns about the rising cost of cancer care. At a plenary session, Dr Saltz was asked to share his perspective on rising costs of care.

“There’s a tipping point that we have to be willing to search for,” he said.

Costs are unsustainable on the national and individual levels. Patients are increasingly unable to meet the demands of high copays and high deductibles, Dr Saltz pointed out. “This year, the premium for a family insurance plan plus out-of-pocket­ healthcare costs will equal approximately half the average US household income,” he said. “If we carry this to its illogical extreme, by 2028, 100% of household income would be needed to cover insurance premiums plus out-of-pocket costs.”

Cancer Drugs Launch at Higher and Higher Prices

Two decades ago, the median monthly cost for a new cancer drug was only $1770. That cost rose to $7000 for the years 2005-2009, and had nearly reached $10,000 monthly by 2010.

Why the high price tag? It has been argued that profit will help drive future innovations. However, Dr Saltz was not convinced, pointing out that the full investment cost for the hepatitis C drug sofosbuvir was recouped within the first year of sales.

Furthermore, innovative drugs are not the only agents that cost so much. There is no difference between the median price of a new drug and the cost of a “me too” drug, he suggested.

For 51 cancer drugs approved for 63 indications between 2009 and 2013, fewer than 50% had a novel mechanism of action, and 30 were next-in-class agents. The median annual costs of treatment were $116,100 for novel drugs and $119,765 for next-in-class agents.

Drug prices no longer reflect the cost of their development or even the competition between different agents. If anything, competition keeps driving up the cost of older drugs. A good case in point is imatinib. Since entering the market, its price has steadily risen, despite the entry of new drugs and an expanding market of drugs with new indications. Imatinib’s average daily cost jumped from <$100 in 2004 to >$225 in 2013, Dr Saltz said.

Finally, he says, cost is clearly not related to efficacy in terms of progression-free survival or overall survival.
“Results suggest that current pricing models are not rational but simply reflect what the market will bear,” Dr Saltz concluded.

Is a Year of Life Priceless?

Dr Saltz said that value and benefit are not the same thing. “We get enormous benefit from these drugs, but value is not just about benefit. It’s not a direct equation. It’s more a ratio and approximation. The more the benefit, the more the value, but the downside in value is toxicities and cost. We cannot realistically discuss value unless we look at all these components.”
He further questioned how much society will be willing to pay for a year of life gained. Dr Saltz noted that the acceptable cost for an additional year of life has risen by $8500 annually since 1995. At that time, based on the price of drugs, the cost to gain 1 year of life was $54,000. At the end of 2014, that cost had risen to $224,000, he pointed out.

“There is no reason to believe this trend won’t continue,” Dr Saltz said.

Putting this all together, he concluded, “Cancer drug prices are not related to the value of the drug, but rather, what has come before, and what the seller believes the market will bear.”

The problem of increasing drug prices has been percolating over several decades, and it involves the US Food and Drug Administration (FDA) as the gatekeeper, which is currently forbidden from considering price in the approval process; the Centers for Medicare & Medicaid Services (CMS) as a major purchaser, which is forbidden from negotiating price with pharmaceutical companies; and Congress, which writes the laws that define the roles of the FDA and CMS, and is heavily influenced by lobbyists.

Time to Set Some Limits

Dr Saltz offered the following suggestions for tackling the cost issue, acknowledging that:

  • There must be some upper limit to how much society will pay to treat cancer
  • Discussions of value and cost must be encouraged within the healthcare industry, government, patients, and providers
  • Alternative payment strategies must be adopted that do not incentivize around the cost of drugs.

“What can we do?” he asked his fellow oncologists at the meeting. “We can embrace our responsibility to deliver high-value, cost-effective care. That means choosing wisely, and choosing not to deliver lower-value, cost-ineffective care.”

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Last modified: August 19, 2015
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