The incoming wave of immunotherapy drugs will probably not lead to “meaningful price competition,” says Peter Bach, MD, of Memorial Sloan Kettering Cancer Center. Doctors and hospitals have an incentive to use more expensive medications.
For a few patients with rare blood cancers that no longer respond to treatment, new therapies that genetically turbocharge their own immune cells may seem a lot like magic. The chimeric antigen receptor T cell (CAR-T) treatments that began earning FDA approvals last year put their disease on hold, perhaps indefinitely.
For payers, though, CAR-T therapies may be a super-expensive headache. One from Novartis, for instance, is priced at $475,000, and the associated hospital care pushes the costs even higher.
And CAR-T treatments are just the crest of a giant wave of high-priced, novel cancer therapies crashing down on the American health care system. An analysis led by Peter Bach, MD, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center, showed that the U.S. median monthly cost of cancer drugs at FDA approval, in 2014 dollars, climbed 100 times from 1965 to 2016.
Meanwhile, the incidence of cancer in the United States is steadily climbing as the population expands and ages, so that by 2020, there will be roughly 1.9 million additional new cases diagnosed per year. One possible consequence: Doctors prescribing tens of thousands of immunotherapies and other ultra-expensive new treatments.
Combination therapies are one of the reasons that costs are rising, says ICER’s Daniel Ollendorf.
Cost concerns are further heightened by a rush into combination therapies. In multiple myeloma, for example, “combination therapy is rampant and you’re adding very expensive drugs onto very expensive drugs,” comments Daniel Ollendorf, chief scientific officer for the Institute of Clinical and Economic Review (ICER), an independent research organization in Boston that analyzes the clinical and economic value of medical interventions. “That just essentially compounds the problem.”
Today’s cancer drugs are more effective and more tolerable, so patients take them for longer periods, notes Syed Yousuf Zafar, MD, associate professor of medicine and of public policy at Duke University. But the drugs are also vastly more expensive than they used to be, and insurers are shifting more of that cost back on to patients.
“These three factors together,” says Zafar, “have resulted in unsurmountable medical costs, for at least a proportion of patients.”
Cancer drugs are a prime example of a level of growth in health care costs that is unsustainable for the country as a whole, Lee Newcomer, MD, the recently retired senior vice president for Oncology, Genetics, and Women’s Health at UnitedHealthcare, said at a conference about cancer politics and business at Yale Law School earlier this year. The bottom line is simple, Newcomer said: “We have a limited set of dollars.”
Newcomer is not an isolated voice. For at least a decade, a Greek chorus of physicians, health care executives, and health care policy experts has warned about the rising costs of cancer drugs. Yet the allegedly unsustainable continues. Many powerful players have a vested financial interest in high prices—everyone, it may seem, except patients and taxpayers.
While there are many attempts to bring all players in for private discussions on price, those meetings have produced very little progress. “I’ve been in those rooms many times and all I can say is, it’s not the room where it happens,” Bach remarked at the Yale conference.
So what might end the deadlock? And when?
Here’s a look at three contenders for change: competition among drugmakers, customer pushback, and the federal government (spoiler alert: the real decider).
“Pharmaceutical companies are doing what they are supposed to be doing,” says Tito Fojo, MD, PhD, an oncologist at Columbia University Medical Center in New York. “They are supposed to be making as much money as possible, and that’s what drives them.”
Those in the industry often make the case slightly differently. “Miscast as a bloated expenditure, high prices on branded drugs incentivize and attract society’s talent and capital to the biopharmaceutical industry to fund and research new cures and treatments that will eventually become inexpensive generic drugs,” commented Peter Kolchinsky, PhD, managing partner at RA Capital Management, in a December 2017 blog post published by Medium. “These resulting generics are one of humanity’s most valuable and underappreciated resources… High-priced branded drugs power this entire biopharmaceutical ecosystem. Drug price controls would imperil it.”
While such views are strongly held in drug development, critics point out that some economic analyses paint a less flattering picture. Despite their large investments in research and development, major pharmaceutical companies generally report net profits that are more than double those of the average Fortune 500 company. And the companies often plow back more of those profits into stock purchases than they do into R&D. One study by the Institute for New Economic Thinking in New York found that between 2006 and 2015, large drug firms spent 11% more on such moves than on research and development. More recently, four firms (AbbVie, Amgen, Merck, and Pfizer) disclosed that each would use $10 billion in savings from the 2017 U.S. tax overhaul windfall to buy back shares rather than investing in research.
An analysis by Bach and colleagues, published in Health Affairs in 2017, examined finances for the 15 companies that sold the 20 top-selling drugs globally. The researchers compared drug pricing in Canada, Denmark, Ireland, and the United Kingdom to pricing in the United States. Prices in those countries were, on average, 41% less than U.S. prices. In 2015, the premium earned by U.S. net prices generated $116 billion, while the companies invested only $76 billion on R&D.
Furthermore, those profits are not built on classic free market competition. Newcomer gives the example of Gleevec, the groundbreaking targeted inhibitor for chronic myelogenous leukemia, which was priced at about $3,000 per month when the FDA approved it in 2001. It now has four competitors. In a truly free market where similar products compete on price, the tendency would be for prices to drop. Instead, Newcomer said at the Yale conference, Gleevec and its competitors are now all priced at about $11,000 a month.
“Health is very emotional,” says Bernard Munos, a pharmaceutical consultant. It’s easy to whip up outrage over drug prices.
“Markets need to be efficient, and goods need to be priced according to the values that they deliver,” comments Bernard Munos, a pharmaceutical innovation consultant and senior fellow at the Milken Institute. “We haven’t seen that in pharmaceuticals, and that has allowed some very marginal companies with marginal products to prosper. This hurts patients and it hurts the legitimate innovators. Free pricing probably is giving us more drugs than if we had price controls, but if we cannot afford them, what good does that do for us?”
“There’s a real tradeoff in regulating drug prices,” says Jonathan Gruber, professor of economics at Massachusetts Institute of Technology. “If we cut back on what drug companies make, will they cut wasteful advertising, or profits, or R&D? It’s not entirely clear.”
While some observers hope that the incoming wave of dozens of immunotherapy drugs will bring down price tags, “it’s pretty unlikely there will be meaningful price competition,” says Bach. “The discretion for choice between them rests in the hands of doctors and hospitals that make a percentage-based mark-up on these drugs, so they have embedded incentives to prefer more expensive drugs, or certainly not prefer cheaper ones.”
Some industry consultants recommend that drug companies, whose products often take a decade or more to get on the market, rethink their long-term pricing strategies. “We’re at a tipping point where annual price increases of 10% or more won’t work,” noted a 2017 white paper titled “The New Normal for Biopharma as Price Growth Finally Slows” by L.E.K. Consulting, a consulting firm headquartered in London. “While increased pushback on drug prices and price increases is unlikely to happen overnight, the current economic and political environments require fresh, creative strategies from an industry that has long relied on a minimally regulated pricing system.”
Overall, however, drug companies themselves “are very active in exacerbating the problem as you would anticipate, because higher prices equal higher revenues equal higher share price equal happier senior execs and shareholders,” observes Bach. “The industry is looking at these spaces as huge revenue opportunities.”
Payers, both public and private, are working all the time to constrain their costs. But when it comes to the cost of cancer treatment drugs, they’re facing a daunting obstacle course. “It would take a very powerful intermediary to really drive down prices through use of formulary type tools, and in most states and in Medicare and Medicaid it is either impossible or very hard to use those tools in drugs for cancer,” says Bach.
“Insurance regulation forces payers to pay for any U.S. FDA-approved cancer therapy in 42 states; Medicare has a similar provision,” Newcomer noted in the 2017 American Society for Clinical Oncology Educational Book. “Such mandatory coverage eliminates any consideration of value…. Removal of this legislated requirement would open the marketplace, and pharmaceutical manufacturers would compete on price and outcomes.”
In addition to explicit legal constraints, payers are aware the public puts cancer and its treatment in separate categories. “There is an underlying view of some implicit higher moral value to cancer medicine innovation, something distinct, that because of its focus on ‘preventing death’ holds special authority in comparison to other medicines,” pointed out Bishal Gyawali, MD, and Richard Sullivan, MD, both at the Institute of Cancer Policy at King’s College London, in a 2017 paper in New Bioethics. “Increasingly, we are seeing patient advocacy organizations taking this position. Any new cancer medicine is presented as having an intrinsic high value; the promise of control and cure must be available to all and any patient, regardless of the cost to society.”
“It’s difficult for payers to make very stringent coverage decisions around cancer because there is so much fear and dread associated with the conditions,” agrees ICER’s Ollendorf. His organization is one of several American organizations establishing value assessment frameworks that are similar to those that organizations in other countries have created. The National Institute for Health and Care Excellence (NICE) in Britain is perhaps the best known of the overseas organizations. The value frameworks here lack NICE’s regulatory teeth, but they do provide independent assessments that can aid in discussions among manufacturers, payers, providers, and patient groups.
One challenge for value assessments of cancer drugs is that cancer clinical trials often don’t gather enough data to make judgments with much confidence. By design, the follow-up periods are relatively short and the endpoints, such as progression-free survival, can be misleading—and sometimes manipulated to get an overtly positive result (see “Values on Trial”).
Payers are responding with a variety of outcomes-based contracts, which can include partial reimbursement if and when a patient relapses. “While the cancers themselves and the treatments are complex, the outcome that people want is pretty clear: You want to live longer while maintaining a relatively decent quality of life,” Ollendorf comments. “Those things are not that difficult to measure, and they could be part of outcomes-based contracts—if there is more willingness to engage in those contracts.” Indication-specific pricing is also being talked about (see “Indication-Specific Drug Pricing—Simple in Theory, Complex in Reality”).
Although value assessments are a crucial tool, they shouldn’t be used just to validate current or ever-increasing prices, others insist. “The outcomes contracts and refunds for patients when treatments do not work are not designed to lower net prices of drugs,” declares Bach. “They are designed to protect the ability to charge exorbitant prices for drugs, by reframing the problem as ‘you don’t have to pay if it doesn’t work,’ leaving out the reality that you have to pay far too much when it does. And the contracts that define when it doesn’t work are such that the refunds will be rare and minimal.”
On a more macro scale, value assessments often look at cost-effectiveness rather than individual affordability or budget impacts on society at large. ICER is an exception, highlighting treatments whose annual U.S. cost would approach $1 billion. In March, for example, it found that both of the approved CAR-T therapies provided net health benefits—but at current pricing, only 38% of eligible patients could be treated before crossing this threshold.
In almost every country, including the United States, national governments set health care policy, although here, some state governments are taking the lead in some areas, including on drug prices.
At the federal level, ideas for imposing discipline on prices range from fundamental (a single payer system) to fairly major (empowering CMS to negotiate prices for Medicare) to moderate (officially relaxing the rules against individuals importing medications; accelerating the development and approval of generics and biosimilars; requiring greater pricing transparency). In other countries, the government plays an active and direct role in pricing; for instance, Australia drops payment for a branded drug after the approval of its first generic or biosimilar competitor, and the price continues to fall over time.
In this country, the topic of high drug costs has bubbled up in many news cycles during the last several months. And it packs enough punch to rev up social media discussion. All told, public attention on drug prices is probably higher than it’s ever been. The Kaiser Family Foundation’s public opinion poll on health issues in March found that more than half (52%) of Americans believe that bringing down the price of prescription drugs should be a top priority for President Trump and Congress.
“We have the attention of policymakers,” Yale law professor Amy Kapczynski remarked at the Yale conference, She pointed to a 2017 Senate bill backed by Democrats that would have boosted pricing transparency, promoted Medicare price negotiations, and allocated significant funds for government-run clinical trials that pharmaceutical firms don’t support. “This is not something that you would have seen earlier,” she remarked. However, lacking Republican support, the bill went nowhere.
“There is no visible force that I’m aware of that could reverse this pricing trend,” says Syed Yousuf Zafar, MD, of Duke University.
In all these public debates, experts note, payers and providers are fighting battles on many fronts, while drugmakers can focus tightly on pricing.
“There is no visible force that I’m aware of that could reverse this pricing trend,” comments Duke’s Zafar. “I see drugs being introduced at higher and higher prices, and aside from some grumbling there is not a lot of pushback…. We as a country are not willing to set limits on health care utilization, and we’re not willing to negotiate prices with the pharmaceutical industry.”
“It’s difficult to predict what is going to happen because a lot of it may ultimately be driven by emotion,” says Munos, the pharmaceutical consultant. “Health is very emotional. It’s easy to whip up crowd outrage on these matters. When you’re eligible for a treatment and somebody says you’re going to die because you can’t pay the copay, that is guaranteed to drive you absolutely up the wall.”
“More drugs are being offered, and good drugs at that, but that cost a gazillion dollars,” Munos adds. “The payers are doing their best to ration those drugs, and in doing so they’re creating a lot of anger and dissatisfaction. That dissatisfaction eventually will be channeled back through the voters to the elected representatives. The pressure is building up.”
“As long as we have no policy-level consensus how we want to allocate our collective resources, the health care system will continue to vacuum up more and more of societal wealth,” remarks Bach. “We can sustain this wealth transfer for a very long time. It will involve taking funds away from other things like infrastructure and education and discretionary income of individuals, and piling on more debt that is carried far into the future.”
“Pharmaceuticals is a really powerful lobby, and it takes a lot of angry voters to offset a million dollars of contributions from a lobby,” says MIT’s Gruber. “Ultimately, society has to decide how much it wants to pay to save people’s lives. Right now we’re not willing to say no, and the question is at what point will we say no…. I still don’t know what it will take to make that happen, or when we’ll do it. But when we do it, we’re coming for the drugs first.”