Drug prices and some other issues related to

spending on cancer treatment

David Howard
Department of Health Policy and Management
Winship Cancer Center
Emory University
david.howard@emory.edu

Drugs in development according to PhRMA

Pharma. 2015 profile. Biopharmaceutical Research Industry. http://www.phrma.org/sites/default/files/pdf/2015_phrma_profile.pdf

Figure 2: Price per life year gained versus approval date

Price per life year gained ($1,000s)

400
350

802

Source of survival benefit:

Trial, overall survival
Trial, progression-free survival
Modelling study

300
250
200
150
100
50
0

1996

1998

2000

2002

2004

2006

2008

2010

2012

Approval date
Howard
Pricing
Anticancer
Journal
Economic
Perspectives.
2015.
The bestetfital.
line
is: Price
per life yearDrugs.
gained =
$54,100of
+ $8,500
Approval
year.
For purposes of display, we re-coded one value from $802,000 to $400,000.

2014

The process of price setting

Evaluation of the cost of the next best therapy
Physician surveys
Surveys of insurance company medical directors
Consideration of political and public relations risk

The process of price setting

How are the prices of cancer drugs decided? Of the many
complex factors involved, price often seems to follow a
simple formula: start with the price for the most recent
similar drug on the market and price the new one within
10-20 percent of that price (usually higher).

Experts in Chronic Myeloid Leukemia. The Price of Drugs for Chronic Myeloid Leukemia (CML) is a Reflection of the Unsustainable
Prices of Cancer Drugs: From the Perspective of a Large Group of CML Experts. Blood 2013;121(22): 4439-42.

The Zaltrap affair

Reference pricing
A spokeswoman for AstraZeneca justified the price
of Irressa as in line with other cancer treatments.
(Marcus 2004).
The retail price of the drug will be $5,416 per month,
an amount that Onyx said is in the range of similarly
specialized cancer drugs. (Silber 2005)
Gold [CEO of Dendreon] says that the cost of
Provenge was based on the overall landscape of
treatment prices for cancer. (Hutchison 2010)

What is the right price?

Wholesale acquisition cost: Paid by wholesalers to drug firms
Average wholesale price: Paid by pharmacies and providers to
wholesalers.
Average sales price: Total sales of the drug divided by quantity sold.
Medicare pays physicians and hospitals ASP+6%.
340B price: Government mandated discount (~23%) to covered entities,
including disproportionate share hospitals, cancer hospitals, and other
types of providers

Defending high prices

Defending high prices

Factors supporting firms pricing power

Few coverage restrictions
Physician-administered drugs are billed as a pass through
item
Physicians face no incentive to avoid high cost prescription
drugs
Most patients face low cost sharing at the margin

Patient assistance programs

Patient assistance programs

Company run patient assistance

programs: private insurance
Foundation-run patient assistant
programs: Medicare/Medicaid

Insurers response to prices

Shift risk to oncology practices
Increase cost-sharing for specialty prescription drugs
Encourage adherence to treatment pathways

Prices: claims and counterclaims

Research and development is expensive
Firms are rapacious
Patents are limited
There are other costly treatments

Consolidation
Higher reimbursement rates
Discounted drug prices via 340B program
Ability to accept risk
Reduced incentives to overtreat
Coordination of care

Biomarkers
CNN clip: http
://am.blogs.cnn.com/2011/06/06/breakthrough-drugs-in-melanoma-treatment-can-extend-life-of-cancer-p
atients
/

Biosimilars

Figure 0: Patients receiving IMRT by provider type

Percent receiving IMRT

40

30

Freestanding

20
Hospital

10

0
2000

2002

2004

2006

2008

Year of surgery

2010

2012

Resources
Price exposes
Rockoff, J. How Pfizer Set the Cost of Its New Drug at $9,850 a Month. Wall St. Journal December 9, 2015
Goldberg P. Zaltrap Price Cut in Half Effective immediately as Sanofi Responds to Criticism from Oncologists. The Cancer Letter. November 8, 2012.
AND Goldberg P. Sanofi: Zaltrap Price Reflects Competing Drugs in Second-Line Metastatic Colon Cancer. The Cancer Letter. November 2, 2012.
Senate Finance Committee. The Price of Sovaldi and Its Impact on the US Healthcare System. December 2, 2015.
People
Peter Bach, Memorial Sloan Kettering
Lee Newcomer, Medical Director, US Healthcare
Jennifer Malin, Medical Director, Anthem
Rena Conti, University of Chicago
And, of course, yours truly: David Howard, Emory.
Cost-effectiveness/Value of drugs
The DrugAbacus http://www.drugabacus.org/
Tufts Cost Effectiveness Analysis Registry https://research.tufts-nemc.org/cear4/SearchingtheCEARegistry/SearchtheCEARegistry.aspx
Institute for Clinical and Economic Review

The market for anticancer

drugs
Financial significance:
Total spending was $37 billion in 2013 (IMS 2014)
Over 900 anti-cancer drugs are in various phases of preapproval testing (PhRMA 2012)

Symbolic significance: Today NICE routinely denies

Britons life-prolonging drugs that are deemed not cost
effective The result, studies show, is that Great Britains
cancer survival rates are among the worst in Europe and lag
behind the United States. Newt Gingrich (2009)

Economic significance: Tradeoff between life and health is

very explicit