Seize the Cancer Drug Pricing Debate To Transform How We Value New Medicines.

America is winning the war on cancer. We’re making real progress in hard-to-treat cancers like metastatic melanoma, some types of lung cancer, and drug resistant leukemias and lymphomas.  Even more impressive medicines (like genetically modified, tumor-killing T-cells) and diagnostics (like blood tests for tracking cancer) are expected to come online in the next several years.

But financing challenges are increasing rapidly as well. The list price of newly approved cancer treatments has doubled over the last decade, from $5,000 to $10,000 per month. While these treatments can be highly effective, overall response rates are still relatively low: Only a fraction of patients treated with new immunotherapies respond, and many new drugs will have to be used in combination, entailing dramatically increased drug treatment costs.

As more patients qualify for treatment with new medicines, U.S. spending on cancer is expected to rise sharply, from $124 billion in 2010 to at least $158 billion (2010 dollars) by 2020. And while some medicines are clearly “breakthroughs,” others appear to be incremental advances, leading payers to increasingly question cancer drug pricing.

Patients are being caught between the hammer of rapidly-rising costs and the anvil of cost control efforts, like high co-insurance for off-label treatments. Affording life-saving medicines should be the last thing a patient facing a potentially terminal illness should have to worry about.

Efforts to link reimbursement to patient outcomes are long overdue. Drug companies and insurers agree that prices should be linked to value, but haven’t reached broad agreement on how to get from paying by-the-pill to paying for results.

Here’s where to start: Develop consensus among innovators, payers, and regulators, on the trusted IT systems and core metrics to track patient outcomes in real time. Then pilot projects with sophisticated cancer providers that link reimbursement to real world outcomes through electronic medical records and high quality diagnostics, while also collecting robust data on patient preferences. By mining data on patient outcomes and treatment costs in real time we can better define value across the entire cancer care delivery system.

At the same time, the FDA should also create a conditional approval pathway for new cancer medicines, based on preliminary safety and efficacy data in selected cohorts of cancer patients who have few good options today. This will allow expert oncologists to experiment with treatment combinations and develop better tools for matching new medicines with the right patients. Faster market access at lower cost to developers through conditional approvals can enhance competition by allowing more products to compete head to head based on prices and outcomes.

Last, but far from least, we should create a safe harbor from Medicaid’s requirement that the program automatically get the lowest drug price from any private contract. This will allow insurers and drug companies to experiment with more pay-for-performance contracts without worrying about how they’ll affect prices for federal programs. (Retooling Medicaid contracts to include outcomes based pricing can come later.)

Our goal should be to customize cancer care at scale, creating the information systems and financial incentives for matching the right treatment, to the right patient, at the right time.

Along the way we’ll deliver better outcomes for patients, reduce dangerous side effects, and spend less money on ineffective treatments.

Industry will share more financial risk with payers, but drug prices should also evolve to reflect their value to patients.

Cancer drug spending can appear daunting, especially in the near term. But there are parallels to be found in our efforts to contain HIV/AIDS.

Better data, captured in real time, will help us deliver greater value for every dollar we spend on cancer care.  It will also give insurers, researchers, drug companies, regulators, and patients the critical information they need to fight, and win, the war on cancer.

That is our national challenge—but also a tremendous opportunity to be seized.

Paul Howard is also the author of a new Manhattan Institute report, Precision Oncology in the Era of Health Care Reform: Improving Outcomes, Sustaining Innovation, Increasing Efficiency.

Morning Consult