The Science of Cancer Drug Pricing
Calls are being made for new cancer therapies to be priced according to their true value. Danielle Barron investigates.
While many countries have been seeking to reduce their onerous drug bills for some time by seeking value for money from manufacturers, the inherent complexities of the payment system in the US has meant that exorbitant asking prices for new therapies are de rigeur.
This is nowhere more pertinent than in the oncology field, with the American Society for Clinical Oncology noting earlier this summer that newly approved oncology drugs now cost an average of $10,000 per month, with some exceeding $30,000 per month. These are sums that can put even well-insured patients under extreme financial pressure.
Experts say that soaring prices for new drugs are more likely to be based on what manufacturers think the market will bear, however, and not the value of the therapy to the patient.
Health care management expert, Dr Patricia M. Danzon, PhD, Celia Moh Professor at The Wharton School in the University of Pennsylvania, explains to eyeforpharma that one of the problems in the US is that no one person or body has the authority to seek to limit what price is paid for cancer drugs.
“The underlying reality is that most patients have insurance coverage and most patients and physicians want anything that will help the patient, but within the insurance arrangement there is no mechanism for limiting the price of drugs. This means it’s possible for companies to name very high prices for drugs and that’s what we are seeing.”
Danzon says that it is important to distinguish between the objective effect of a drug on health outcomes, and “value”, which has no well-defined meaning in the current debate.
“Health outcomes include effectiveness, longevity effects, side effects… these clinical and health outcome measures can, at least in principle, be objectively measured. There is, then, the price that the market puts on health outcomes and that is where the term value comes in; what is happening is that manufacturers are trying to determine what the market is willing to pay. The term value in a market context really becomes a synonym for what the market is willing to pay.”
The die was cast in 2012, however, when a group of doctors from the famed Memorial Sloan Kettering Cancer Center used the platform of The New York Times to pen an op-ed explaining why they would not be recommending the “phenomenally expensive” Zaltrap, a new treatment for metastatic colorectal cancer. This unprecedented stance by leading oncologists led the manufacturers, Sanofi, to announce discounts of 50 per cent within weeks of publication.
One of the co-authors of that landmark editorial was physician Dr Peter Bach, MD, MAPP, Director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center, who has since developed his own unique cost-benefit analysis for cancer meds known as DrugAbacus. This online interactive tool assesses the value of a drug by incorporating data on side effects, survival benefits, disease incidence, development costs, novelty and more.
It is Bach's belief that there needs to be a push back on exorbitant pricing in innovative cancer care and what he deems the “unmitigated pricing power” of drug manufacturers. He tells eyeforpharma that if a therapy is as good as it claims to be then patients should have access, but at a fair price – his DrugAbacus seeks to compare the true value of a drug to the price that is charged for it. And he feels that this should happen sooner rather than later.
We shouldn’t have what we have now, which is that the magnitude of price increase as a drug comes on the market vastly exceeds the magnitude of the health benefit increase.
“The reasons for focusing on this now are that, at least in the US, we have a variety of breaks in the systems which are problematic, one of which is that we have unmitigated pricing power at the pharmaceutical company’s level.
“If all the drugs available were priced based on their value and let’s just say we would agree on what that value is, as we get new drug A, it replaces drug B; if drug A is marginally better it should cost a little bit more than B and if it is about the same maybe it costs a little bit less.We shouldn’t have what we have now, which is that the magnitude of price increase as a drug comes on the market vastly exceeds the magnitude of the health benefit increase.”
Bach has strong opinions on the financial hardship the current pricing situationis creating for patients who may be forced to liquidate assets to pay for their treatment.
“There is no doubt that we have a serious problem and the problem isn’t just the price – it is the irrationality of the price and the irrationality of our responses to it. We need a system that looks at drugs based on their value and we need a system that prices them and provides access in the best way to promote health and we definitely need a system that’s not skewed against those with limited means with heavy co-insurance based on the price of the drug.”
It is Bach’s belief that the US health insurance market is “fundamentally broken” as insurers seek to limit access to lifesaving but expensive therapies.
“We have a fundamentally broken insurance market so that when we have high priced drugs, whether it is a wonderful agent that cures a disease or a horrific agent that has toxicity and barely prolongs life, the amount of co-insurance a patient pays is largely connected to price. We have highly effective drugs like Glivec not getting to patients because it costs a lot. A drug like Glivec should cost a lot of money but if a drug has benefit in a certain population, the patients should have access to it.”
According to Bach, the model of co-insurance should “travel counter to prices that don’t make value sense”.
“If a drug has an appropriate value-based price then there shouldn’t be co-insurance.”
In most European countries, the payers do promise to cover their customers but also have specific provisions that set out the maximum price they are willing to pay for a therapy. That does not exist in US so the payers are in the unique situation of not having the means or ability to limit what they pay. But what they are trying to do is limit patient access to ensure that only patients who could potentially benefit from a particular drug get access to it.
The US is markedly different to other jurisdictions with regard to paying for cancer drugs and their expensive therapies, Danzon explains.
“In most European countries, the payers do promise to cover their customers but also have specific provisions that set out the maximum price they are willing to pay for a therapy. That does not exist in US so the payers are in the unique situation of not having the means or ability to limit what they pay. But what they are trying to do is limit patient access to ensure that only patients who could potentially benefit from a particular drug get access to it.
“Unfortunately we do not have a consistent mechanism that would put a market price on various drugs. Other industrialized countries do, such as the Irish system and the UK, where they use health technology assessments to evaluate the objective benefits of a therapy and then set a willingness to pay by the payer per unit of objective health outcomes.
For example, NICE in the UK has a maximum price it will pay per quality adjusted life year gained by using any therapy, with some exceptions. This approach is not without its challenges, but its consistency ensures that payers get value for money, explains Danzon.
“That’s a way of consistently putting the same willingness to pay on health outcomes, no matter whether it’s cancer drugs, or MS drugs, or surgical interventions – it’s trying to ensure that the payer gets the same bang for the buck that they spend and that sort of approach is necessary if a payer is to allocate its budget in a way that gives them the same amount of health outcomes per euro or pound spent. That’s what payers in the US do not yet have.”
Bach agrees that the DrugAbacus is not an entirely new concept but says that it brings an added dimension to evaluating the true value of a therapy.
“There is no structural difference between [the UK system] and what the DrugAbacus proposes but there are very important differences in the components considered. The DrugAbacus idea is that maybe we should be thinking about toxicity, maybe we should be thinking about the novelty of a compound, maybe we should think about things like rare diseases and public health burdens and things like that.”
So are manufacturers simply setting arbitrary prices based on what they think the market is willing or able to pay? While access to therapies may be limited when there is already a comparable drug on the market, when a novel drug emerges to which there is no comparator, or represents a significant improvement on a predecessor, then there is no benchmark that limits what a manufacturer can charge.
As Danzon points out, there is currently a flood of expensive oncolytic therapies coming to market; as these are often used in combination, the final bill can be colossal.
“Multiply these hundreds of thousands of dollars by two or three and this really does become a huge problem.”
We know that the cost of a life-year in cancer goes up $8,500 dollars per year so if the plan is that every new drug costs two or three times what the drug it’s replacing cost, or 10 or 50 times, and the marginal gain is not 50 times but just 10 per cent or 20 per cent then we will have a rapid spiral into unaffordable care.
Indeed, according to Bach, if the current situation endures, the problem will become a full-blown crisis.
“On current trajectory it is going to grow. We know that the cost of a life-year in cancer goes up $8,500 dollars per year so if the plan is that every new drug costs two or three times what the drug it’s replacing cost, or 10 or 50 times, and the marginal gain is not 50 times but just 10 per cent or 20 per cent then we will have a rapid spiral into unaffordable care.”
A consistent approach
So what should the key components of any cancer drug pricing system be? Should the US mimic the UK and other countries? Danzon believes a mechanism broadly similar to the UK system should be employed in the US, where each payer would have a threshold price that they would pay per unit of health outcome.
“There should be a consistent application of that principle across other drug classes and perhaps other types of health interventions such as expensive surgeries, gene therapies, etc. This is the only way the payer can obtain the greatest health outcomes for their budget and that is really what value should be about.
“It doesn’t necessarily have to be QALYs but it needs to be consistent. It is a sea change compared to how we are doing things now but I think we are going to see more and more explicit debate about some sort of limit.”
Bach says the focus needs to return to the patient and the business of improving their outcomes.
“I believe we are losing sight of the organizing principle of healthcare that it should be about improving the outcomes of people with illness. The biomedical innovation space seems to be oriented towards enriching the entire chain of actors along the innovation path, without much regard to whether the patient is actually able to receive the innovative therapy. We've lost our way.”
“The first person who benefits should be the patient who needs it.”
The first step
So is the market ready for DrugAbacus, or any other system that proposes a nuanced look at the true value of a new therapy? Bach says it is, but admits that with so many players involved, he is unsure who will take the first step.
“It would be nice if there was a decree that we should have value-based pricing across the marketplaces but I think it will take quite a while. I don’t think the idea of a value calculator is that out of left field but I don’t know who moves first on this. It is really time for the industry to look itself in the mirror and ask why the incremental costs are rising faster than the incremental benefits. Have we reached a steep part of the yield curve on biomedical advances or have we just let pricing get out of control? I would argue that the evidence strongly points to the latter.”
New oncology therapies used to promise very limited benefits in terms of survival and progression-free survival; this is no longer always the case argues Bach.
“We are making strides; for example, Perjeta is a really exciting drug in the adjuvant setting and even in the metastatic setting. Keytruda is another example. These are amazing things we are witnessing; it is another wave following Glivec, and it’s now 14 years since that was approved.
“The problem is not that we have reached a diminishing return in our ability to make biomedical advances, I think it’s the opposite. We need to ask ourselves, can we continue to make the progress patients need, without trying to extract every penny of available profit, when those profits are only available because the system is broken?”
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