High Price of Cancer Drugs Not Justified By Health Outcomes

Two new studies on the price of cancer drugs add to the mounting pile of bad news for the patients and insurers. Prices aren’t dropping and they also aren’t achieving the health outcomes the prices seem to call for.

Both studies appear in the May edition of Health Affairs.

The first study shows that the price of oral cancer drugs recently approved by the Food and Drug Administration increased 5 percent each year between 2007 and 2013. This undermines the argument that even though cancer drugs are expensive when they are introduced, competition reduces the price over time. (The majority of cancer drugs are injectables, but oral cancer medications have become increasingly popular. About one-fourth of all oncology drugs in the development pipeline are oral medications.)

The second study examined cancer drug spending and its health impact in the United Stats and eight other advanced countries. It found that the U.S. spends more than other countries on cancer drugs, but it lags behind these countries in health gains per dollar spent. This suggests that cancer prices are not well-pegged to value.

Prescription drug prices are an increasingly controversial topic in Washington. The drug industry and its supporters argue that recent spikes in prices are anomalies. They also say the high prices are needed to pay for research and development and that health care costs as a whole need to be examined. Other health care groups, particularly insurers, argue that drug prices are too high on their own and are straining the entire system.

Oncology is the specialty drug class the U.S. spent the most on in 2015, even though other drugs and drug companies have made headlines for particularly high prices for new drugs, or for drastic price spikes. The United States spent $39.1 billion on cancer drugs in 2015, according to an IMS Institute for Healthcare Informatics report released last month.

Oncology drugs also constituted one-third of all drug launches last year. Last year additionally saw the most approvals ever of targeted oncology drug “indications.” An indication is a specific use of the drug. An individual drug can be approved for multiple indications. Last year, 14 of the 24 oncology drug approvals were first approvals on a drug by the FDA. The other 10 were subsequent approvals for other uses.

Getting additional FDA approvals is a good thing for drugmakers. While the cost of developing and bringing a new drug to market is very high, the cost of producing that drug is relatively low. That means drugmakers have a strong incentive to increase demand, and adding indications to a drug is a good way to do so.

Each new indication increases demand, but it does not reduce the price. The Health Affairs report found that the price of orally administered cancer drugs rose an additional 10 percent with each supplemental indication approved by the FDA. The price of a drug only declined 2 percent when the FDA approved a competitor drug.

“Our findings suggest that there is currently little competitive pressure in the oral anticancer drug market,” the study’s authors wrote. “Policymakers who wish to reduce the costs of anticancer drugs should consider implementing policies that affect prices not only at launch but also later.”

The Pharmaceutical Research and Manufacturers of America pushed back against the study.

“We have seen dramatic improvements in cancer survival as a result of innovative treatment advances, with death rates declining 23 percent since their peak,” said Holly Campbell, a spokeswoman for PhRMA. “New oral therapies are giving patients treatment options that are not only easier to receive but also result in reduced side effects for many patients.”

Campbell also said many factors can cause the list price of a medicine to fluctuate, including competition in the market and the value the medicine provides to patients. “For example, after a medicine comes to market, we may find out that it is more effective or has broader use than originally anticipated.”

Importantly, the authors of the Health Affairs study found that average payments by patients for these drugs did not increase over time. Rather, reimbursements from health insurers tracked upward with the study’s drug price results, meaning insurers picked up the tab for the price hikes.

A possible explanation for the anti-competitive nature of the cancer drug market is that cancer patients are often treated with several drugs at once, so choosing one drug doesn’t necessarily mean similar drugs won’t be used at the same time or later on.

“The way in which new cancer drugs are tested and used in practice produces an effective monopoly that does not end with the introduction of a competitor product,” the authors wrote. “Drugs can therefore have whatever prices the market will bear, which can be extraordinarily high when an insured person faces a life-threatening illness.”

The market itself won’t fix this problem. “Our findings therefore suggest that competition is unlikely to meaningfully rein in the escalating costs of oral anticancer drugs in the near future,” the authors wrote.

The authors suggested tying cancer treatment payment to the health value of the drug — a concept relevant to the second Health Affairs study, which looks at the link between value and price.

The study found that the U.S. outspent all other eight countries on cancer drugs on an incident-adjusted basis. It also had one of the smallest returns on its spending. “Although the United States consistently outspent other countries on cancer drug care in the study period, it also witnessed one of the smallest improvements in cancer-related health outcomes,” the authors wrote.

On the other hand, the U.S. did have a net positive return from the use of cancer drugs, through recoveries and remissions, valued at more than $32 billion in 2014 in those patients’  contributions to the economy. But other countries had a better return.

The U.S. accounted for about 56 percent of all 2014 cancer drug spending among eight countries, but it received only about 13 percent of the total global net economic return in the same year because the cancer drugs.

The reason, the authors said, is the cost of the drug. “Growth in U.S. cancer drug expenditures is primarily driven not by consumption — which is key to improving patient outcomes — but by high prices for brand-name drugs,” the authors wrote.