In 2011, national health-care spending in the United States was about $2.7 trillion, larger than the entire French national budget.¹ U.S. national health-care spending is about 17% of the national gross domestic product. Total Medicare expenditures in 2011 were $549 million.² In the debate about health care and Medicare solvency, strategies to reduce health-care costs without compromising treatment efficacy and patient safety should be explored. With all the new targeted therapies in cancer hitting the market at prices exceeding $120,000 per year, this area is becoming a fast-growing economic concern in health care.

Recent Trends

Compared to a decade ago, the price range of new anticancer agents has more than doubled, from $4,500 to about $10,000 per month.³ It has been suggested that “profiteering” (making profit by unethical methods, such as raising prices after natural disasters) could be applied to this recent trend, where life-threatening disease is the natural disaster.

Pharmaceutical companies contend the higher prices are necessary to support investment in research and development. The often-cited cost of bringing anticancer drugs to FDA approval is $1 billion. This figure may be inflated to include ancillary expenses, salaries, bonuses, and other indirect costs not related to research and development. This trend of increasing drug prices is not unique to targeted new molecules but also applies to novel or reformulated chemotherapy drugs.

How are anticancer drug prices set? Quite arbitrarily, it appears, by pharmaceutical companies that charge “what the market will bear.” As new agents are approved by the FDA, pharmaceutical companies seem to analyze the market response to the most similar previous agent, and then set the price of the new drug about 15% to 20% higher. In a free market, the hope is that the drug price settles according to its real benefit. But there seems to be little correlation between the actual benefit of a new drug and its price, based on standardized objective measures like cost-efficacy ratios, prolongation of patient life in years, or quality-adjusted life-year.⁴

Self-inflicted Wounds

An interesting phenomenon involves laws that explicitly prohibit Medicare from negotiating lower drug prices (although the Department of Veterans Affairs can, and actually does pay about 50% of the prices paid by Medicare). These laws may have resulted from interest-group pressures to protect the profits of pharmaceutical companies at the expense of our health care.

Most other countries pay significantly lower prices for cancer drugs. For example, the prices of drugs to treat chronic myeloid leukemia in the rest of the world are 25% to 50% those a patient pays in the United States. This seems unfair to our U.S. health-care system and equally unfair to our patients, who often shoulder the burden of such costs (about 20% of the price of drugs, which may come out to about one-quarter of a household income). Is it any wonder that the most common cause of personal bankruptcy in the United States is medical bills?

Allowing the free market to set drug prices has spiraled the cost of cancer care out of control. However, our self-inflicted wounds can be easily remedied through new legislation that allows U.S. health-care agencies better leverage on drug prices and health-care costs. More reasonable prices of new anticancer agents need to be based on rational discussions of their cost-benefit as well as both individual and societal costs.

Value-based Pricing

We propose that experts in particular tumors convene and discuss the prices of new cancer drugs once they are FDA-approved. Discussions should involve governmental health agencies, Medicare, FDA, expert oncologists, insurance companies, pharmaceutical companies, and other interested parties. Only then can we come up with acceptable solutions that provide financial profit to pharmaceutical companies but safeguard the economic infrastructure of the U.S. health-care system and avoid undue financial burden on patients with cancer.

Any of several methodologies can be employed to derive a reasonable price for a new anticancer agent. Simple measures of efficacy could be based on the amount of time a new drug prolongs life. For example, if survival is prolonged by more than 6 months and/or by more than one-third of the patient’s life expectancy (eg, 12-18+ months or 30-40+ months), this would be considered extremely effective and would put the drug price in a higher range””for example, over $50,000 per year, but not more than $75,000.

A drug that prolongs survival by 3 to 6 months and/or by 25% to 33% of life expectancy (eg, 12-16 months or 30-37 months) would be considered beneficial and priced modestly””perhaps between $30,000 to 50,000 per year. Finally drugs that demonstrate “statistically significant survival benefits” of 2 months or less and less than 25% prolongation of life expectancy would be considered to have minimal efficacy and priced below $30,000 a year.

This proposal would present a true value-based pricing system. The better the drug, the more the drug company can make. Is this not the American way? â– 

Disclosure: Drs. Kantarjian and Zwelling reported no potential conflicts of interest.

References

1. National Health Expenditure Projections 2011-2020. Available at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2011PDF.pdf. Accessed October 2012.

2. 2012 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. Available athttps://www.cms.gov/ReportsTrustFunds/downloads/tr2012.pdf. Accessed October 26, 2012.

3. Fojo T, Grady C: How much is life worth: Cetuximab, non-small cell lung cancer, and the $440 billion Question. J Natl Cancer Inst 101:1044-1048, 2009.

4. Hillner B, Smith T: Efficacy does not necessarily translate to cost effectiveness: A case study in the challenges associated with 21st-century cancer drug pricing. J Clin Oncol 27:2111-2113, 2009.