Recently, the Mayo Clinic published a paper on the importance of economic trade-offs in cancer drug pricing. The paper, written by several doctors from a variety of clinical and practical settings, discusses two possible misconceptions about cancer care in the United States and highlights the need for a more complete understanding of existing evidence outside of medicine to address core questions about the value cancer drugs provide.
The authors note that cancer drugs account for roughly 1/10 of the total prescription drug market and that while the share of overall prescription spending in total health spending has increased slightly in recent years, new cancer treatments are routinely priced at over $100,000 per year of treatment. Such a steep price tag has raised questions of affordability and value to patients.
The first misconception discussed by the authors is that new drugs offer little value to patients and society. The authors note that actually, economic evidence suggests that the societal benefits from cancer care have historically exceeded the cost. For example, they state, from 1988 to 2000, investments in cancer research resulted in survival improvements generating 23 million additional years of life and $1.9 trillion of social value for Americans. Health care providers and drug manufacturers appropriated anywhere from 5 to 19 percent of that estimated societal value, with the balance of the benefit accruing to the patients.
The authors compare solely using list prices of drugs to using MSRP prices in determining the value of a consumer good,
Using the list price of cancer drugs invariably makes newer drugs appear less valuable, even though health insurers frequently pay prices well below the list price of oncology drugs. This scenario would be analogous to using the Manufacturer Suggested Retail Price in assessing the value of a consumer good, as opposed to the price that most consumers, in this case health plans, pay. This is not to say that using actual transaction prices would make new cancer drugs cost-effective – they may still not be – but proper accounting is the exception, not the norm.
The authors also speak to the “value of hope” and how it is also not routinely included in value assessments of cancer therapies. Both new and old drugs offer important sources of value beyond improvements in traditionally measured and valued QALYs, none of which are routinely incorporated in the value assessments of oncology drugs.
The second misconception discussed in the paper is that reducing prices of cancer drugs would not have an adverse impact on innovation. They note that some investigators “estimate that 9 in every 10 drugs fail at some point in the research and development (R&D) process, with estimated costs of drug development (including failed therapies) of over $2 billion per marketed drugs.” They note that there are detractors who do not believe that R&D is such a large expense for manufacturers, but also mention that the returns from a few successful products cover the R&D costs of many failures, even citing to a study that found 2/3 of drugs brought to market have lifetime sales below the cost of development.
An interesting point made by the authors is that if pharmaceutical financial returns were outsized compared to other industries after accounting for risk, institutional investors would place disproportionate weight in their investment portfolios toward pharmaceutical companies – which is not taking place.
The article concludes by noting that “existing evidence outside of medicine suggests that a failure to broadly and accurately assess value raises the risk of underinvesting in therapies that may create large benefits for society and perhaps overinvesting in therapies whose societal returns are relatively low.”
If you would like to access the article in its entirety, it can be found here.