6 Ways Regulators Could Tackle the High Cost of Cancer Drugs

By Markets Fool.com

The past three-plus decades have witnessed some amazing medical advances when it comes to treating cancer -- but there's still quite a ways to go.

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Based on statistics from the American Cancer Society's Cancer Facts & Figures report from 2016, five-year survival rates in a number of cancer types have soared. Between 1975 and 1977, prostate cancer, breast cancer, and melanoma yielded five-year survival rates of 68%, 75%, and 82%, respectively. Between 2005 and 2011, five-year survival rates had jumped to 99%, 91%, and 93%. Keep in mind that this data is looking back 5 to 11 years, so survival rates may have improved even more in 2016.

Cancer drug affordability is headed in the wrong direction

However, one aspect of cancer treatments that's heading in the completely wrong direction is affordability.

A recently published study in JAMA Oncology from Stacie Dusetzina, Ph.D., an assistant professor at the University of North Carolina's Eshelman School of Pharmacy and member of the UNC Lineberger Comprehensive Cancer Center, showed that orally administered cancer drugs have catapulted higher in price by 506% between 2000 and 2014. Dusetzina's research showed an average monthly price for oral cancer drugs of $1,869 in 2000, or about $22,400 a year. By 2014, this had soared to $11,325 a month, or $135,900 per year. We need only take a look at the recently approved future backbones of cancer treatment, cancer immunotherapies, for confirmation of this. Merck'sKeytruda and Bristol-Myers Squibb'sOpdivo price out at $150,000 and $143,000 annually at the wholesale level.

What was particularly noteworthy about Dusetzina's study is that these weren't simply initial pricing shocks that consumers adjusted to. A vast majority of orally administered cancer drugs saw their prices go up post-approval at a rate that far eclipsed the national inflation rate. For instance, Gleevec's wholesale cost rose by 7.5% annually between 2001 (when it was first approved) and 2014, according to Dusetzina's research.

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Why cancer drugs cost so much

Why on Earth does the healthcare system support such rampant inflation that seemingly has no checks and balances? It likely boils down to a few factors.

For starters, cancer drug developers often have a monopoly or oligopoly on select treatments thanks to long periods of patent protection (typically 20 years from the date of investigational new drug approval from the FDA). Even if a few options for treatment exist within an indication, one therapy often emerges as superior, and as such, it typically commands a very high and increasing price point. It can take a decade to bring new treatments to market, so cancer drugs that do merit Food and Drug Administration approval tend to not follow the normal checks and balances that help control pricing in a free market economy.

In addition to exclusivity, there are a number of accepted practices that work in U.S. drug developers' favor. For instance, the standard of living is higher in the U.S. than in most other countries, therefore we pay more for our medicine. By that same token, U.S. drug developers count on high U.S. drug prices and profits to help subsidize treating patients in emerging markets, which would otherwise be unprofitable. Americans also gain quicker access to pharmaceuticals, with drugs available for sale as soon as the FDA approves them. In Europe, reimbursement rates need to be set before a drug hits pharmacy shelves, and that process can take months, if not longer. Lastly, U.S. insurers rarely keep drugs off their formulary due to cost because they fear alienating or angering their member base if they do.

Long story short, it appears as if cancer drugs will be growing in cost at a pace that's well ahead of the general inflation rate for the foreseeable future.


Image source: Pixabay.

Six ways to tackle high cancer drug costs

Although drug developers, and potentially investors, have reaped the rewards of unparalleled pricing power among cancer drugs, regulators are looking at ways to ensure that cancer drugs remain affordable for both insurance companies and Americans as a whole (who pay their insurance premiums). Here are six ideas that have been floated around to possibly tackle high cancer drug costs.

1. Let the federal government play hardball

Arguably the most popular idea offered by lawmakers, including Democratic Party presidential front-runner Hillary Clinton, is to allow the federal government to use its might to negotiate drug prices, with a particular focus on Medicare. Although the risk factors of developing cancer vary wildly, age is a near-universal factor. As such, Medicare, which predominantly covers seniors aged 65 and up, often bears quite a burden from the rising cost of cancer drugs. By using the sheer size of the federal government to negotiate on behalf of Medicare, a sizable dent in cancer drug inflation could be made.

2. Allow the importation of overseas pharmaceuticals

Another possible solution that's gaining steam is the idea of importing pharmaceutical products from overseas countries where better pricing controls are in place. Being able to buy from foreign markets could help break down the monopoly/oligopoly U.S. drugmakers hold on cancer drugs and their pricing. Being able to buy prescription drugs overseas was one of the seven key points Donald Trump highlighted in his plan to repeal and replace Obamacare.

3. Allow the FDA to have some say on pricing

Image source: Centers for Disease Control and Prevention.

An intriguing idea proposed by the Mayo Clinic last year was to allow the FDA and/or physician panels to offer price target ranges for newly approved drugs based on the magnitude of the benefit of the drug. The idea would seem to have a lot of merit since the FDA's researchers are deeply involved in analyzing trial study data, so they'd presumably be some of the best judges of overall treatment benefit.

4. Implement a value-based payment model

Among the most popular solutions to runaway cancer drug costs is the idea of paying drug developers based on the value of the treatment provided. Instead of allowing drugmakers to arbitrarily price cancer drugs, insurers would reimburse them based on the relative improvement in overall survival and quality of life of the patient.

At the moment, an interesting experiment is ongoing in select Medicare markets. Instead of paying physicians a current add-on of 6% on top of the average selling price of a drug, which could encourage pricier drugs be prescribed, the Centers for Medicare and Medicaid Services proposal pays a 2.5% add-on plus a $16.80 flat rate. The idea is to promote the use of lower-cost drugs, and it's being aimed at more than just cancer drugs, but only time will tell if it works.

5. Eliminate the pay-for-delay strategy/adjust patent exclusivity

Image source: U.S. Food and Drug Administration.

A simple regulatory change on patent exclusivity could be another fix to high cancer drug costs. One idea, which has been proposed by Hillary Clinton, could simply be to reduce the number of years drugmakers are allowed to exclusively market a drug. However, one counter-argument is that this would increase costs during that shorter time frame to compensate.

But a more interesting solution could be to eliminate the practice of pay-for-delay, where branded drugmakers agree to a settlement or some form of profit-sharing with generic drug producers to ensure that generics stay out for months or years to come. Eliminating pay-for-delay would likely mean the introduction of generics at a much quicker pace, and generic drugs typically sell for 80% to 90% below branded drug costs.

6. Develop monopoly rules

Finally, the federal government could institute monopoly rules that help regulate cancer drug pricing in situations where there are no other alternatives, or where there's a clear market share leader. The U.S. free-market economy works best when there are more competitors, so U.S. lawmakers would have to lay out boundaries as to what defines a monopoly within the confines of cancer drugs. Admittedly, this would be difficult, and in effect, it would cap drug pricing on potential breakthrough cancer therapies, but it would serve the purpose of curbing cancer drug inflation.

Of course drug developers have tricks up their sleeves to keep their pricing power, too. Drug developers could threaten to cut jobs or move their operations overseas if they face tougher pricing regulations in the United States. We could also see efforts to subsidize emerging markets drop considerably if U.S. profit margins fall, or, worst of all, we could see a reduction in research and development into rarer diseases, which simply wouldn't make economic sense to pursue.

To be clear, the battle between drugmakers and lawmakers isn't going to be solved overnight. But it looks as if we may be nearing the tipping point where cancer drug inflation is no longer going to be swept under the rug to be dealt with later.

The article 6 Ways Regulators Could Tackle the High Cost of Cancer Drugs originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.