New Pricing Strategies Needed to Curb Unsustainable Oncology Drug Spending

At the PBMI 2017 Drug Benefit Conference, Peter B Bach, MD, director of Memorial Sloan Kettering’s Center for Health Policy and Outcomes, discussed how oncology drug spending is accelerating at an unsustainable pace and criticized some typically suggested strategies for addressing this issue. 

Dr Bach explained that, net of rebates, year-over-year prescription drug spending is outpacing every other aspect of health care. He added that this growth seemed to have slowed around the mid-2000s; however, national retail drug spending and employer-sponsored drug spending both skyrocketed in 2014.

Why is Drug Spending Increasing?

Dr Bach offered a couple of reasons why this acceleration in drug spending is happening, especially in the oncology specialty drug market. He cited evidence showing that the monthly median drug price for new oncology drugs coming to the market increased from the low $1000 range in the 90s, to between $10,000 to $100,000 per drug.

“You see a sort of inefficiently to this,” Dr Bach said. “And you could say ‘Well, fine—prices are going up but drugs are getting better.’ And that is sort of true… but the question is: should we even see those [increases]? And what do those rising prices do for us?”

He further explained this line of thought by comparing the pricing structure of prescription drugs to the pricing structure of other manufactured goods. Typically, when the value of goods is tied to higher prices, innovation usually results in prices dropping over time. However, the trend for drug prices seems to be antithetical to this logic.

“In general, innovation leads to lower prices,” he said. However, this does not hold true for specialty drugs.

In response to Representative Jason Chaffetz’s (R-Utah) recent comments explaining that Americans may have to choose between health care premiums and purchasing a new iPhone, Dr Bach compared the monthly cost of the iPhone over time to the cost of 1 week of treatment with the oncology drug Gleevec (imatinib mesylate; Novartis). 

“It’s very common in DC to compare absolutely everything to the iPhone,” Dr Bach explained. “What I’m going to argue, each dollar we pay every year gets us more. But this is the antithesis of this in the case of Gleevec—a drug that hasn’t changed at all that costs 3 times as much today in the US as it did 10 years ago.” He compared this pricing structure to the cost of Gleevec in France, which over the same time period has declined.

According to Dr Bach, this antithetical trend fits for almost every new oncology drug that comes to the market. He cited research which showed that the cost of a quality-adjusted life year added has increased five-fold over the last 10 years, suggesting that oncology drugs are becoming more costly but less valuable.

Dr Bach pointed to another reason that oncology drug prices are rising: wasteful packaging. He presented data showing that in Europe, vials for some oncology drugs, like Velcade (bortezomib; Takeda) and Keytruda (Pebrolizumab; Merck), are more precise to their dosing requirements. In the United States, vials of Keytruda are packaged in 100 mg bottles; however, a dose of Keytruda is 140 mg, requiring two 100 mg bottles. This produces 60 mg of wasted dosing per-patient dose, which amounts to $200 million annually. Dr Bach also pointed out that pharmaceutical companies profit from this practice, to the tune of about $1.8 billion. 

“In this case [the money] isn’t even buying years of life, it’s literally for drug that is being discarded,” Dr Bach said.

How Can Drug Spending Be Reduced?

Dr Bach explored some of the drawbacks of traditional answers to the question: how do we rein in drug prices? First, he pointed to the idea that market forces can be manipulated in order to bring prices down. He refuted this claim, citing evidence showing that competition for new drugs entering the market typically only reduces the drug’s price by less than 2%.

Dr Bach added that those in favor of market driven pricing often ignore the fact that it rarely reduces the costs for specialty drugs.

“When you talk to market-based people, and you say ‘Look, we got another entry in the TKIs and we don’t see a price decline,” the answer is, if there are N competitors, ‘well you need N+1, maybe N+2,” he explained. “So, the challenge of competition isn’t that it isn’t a lovely idea, the challenge of competition is that it doesn’t seem to work.”

Dr Bach highlighted another oft-proposed solution: making patients deal with prices.

“The theory goes, if you give patients what policymakers call ‘skin in the game,’ if you put them at risk, if you forced them to buy health care goods with their own money, then they will be more strategic in how they spend their money,” he explained. “And they will be demanding
consumers, so the market will respond to the choices of the consumers. The problem is that there is no evidence that this drives the behavior you want—unless you change your definition of what you want.”

He went on to explain that consumers in this type of situation will abandon health care services because they do not want to pay for them. Dr Bach noted that the goal of health care is not to discourage consumers from utilizing services.

“The market doesn’t manage to find prices for goods that are linked to things like how well the drug works, but it should, because if we had a system that arrived at those prices, then those rewards for innovation would be strong and you wouldn’t have dissociations.” 

Dr Bach proposed solving for price as a solution to drug pricing issues, or simply put, pricing drugs based on their ability to innovate, provide value, and provide treatment for an unmet need. He argued that the prices for drugs should be a product of what the drugs do and that the marketplace should support this. —David Costill