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FAQ: Why are cancer drugs getting more expensive?



One patient's chemotherapy IV drips.
One patient's chemotherapy IV drips.
kbrookes via Flickr Creative Commons

For several weeks, I've been working on a story about how patients navigate the high cost of cancer drugs. But before I finish that story, I want to take a step back and ask another question: Why are cancer drugs so expensive anyway?

How quickly have drug prices been rising?

In short: Prices have been rising really quickly.

The average price of new cancer drugs increased five- to 10-fold over 15 years, to more than $100,00 per year in 2012, according to a recent article in the journal Mayo Clinic Proceedings.

In 2014, all new cancer drugs approved by the FDA were priced above $120,000 per year of use.

How can drug prices rise this fast?

Dr. Vincent Rajkumar offers at least four reasons for why cancer drug prices have been increasing. He's a professor of medicine at the Mayo Clinic in Minnesota, and one of 118 cancer specialists who co-wrote the Mayo Clinic Proceedings article on the high cost of cancer drugs.

The number one reason, according to Rajkumar, is an issue of economics: In the U.S., the prices of commodities – including medications – are generally competitive and "you cannot just charge very high prices if there's a true free market in effect," Rajkumar says. For example, he says, there are handfuls of drugs available to cure a headache so, "if you price a headache drug at $100,000, nobody will buy it."

But when it comes to cancer drugs, "you are talking about a product that is life-saving and where there is no competition, so in effect, it is a monopoly," he says. Rajkumar explains that the federal government grants drug companies several years of patent protection, "so if they charge $100,000 a year for a drug or $150,000 for a drug, there's no competitive pressure that keeps these prices down."

The second reason prices are so high: A provision of a 2003 law – the Medicare Modernization Act – prevents the federal government from negotiating drug prices on behalf of Medicare Part D prescription drug plans.

That means that "if a drug is approved for advanced lung cancer, Medicare will have to make it available to patients, and if the company charges exorbitant prices, there is nothing they can do," Rajkumar says. "There is no legal recourse and no maneuverability."

He continues: "If you have a system like that, then that lends itself to very high prices."

The third reason: In other countries, Rajkumar says, the price of a drug is tied to the value that it provides. For example, he says, if a drug prolongs the survival of someone with an advanced cancer by a year, "that's a different quality of a drug, and it's a different value, then a drug that prolongs survival by a month or two weeks."

But in the U.S., he says, the FDA approves a drug based on whether it works or not and "neither the FDA, which approves the drug, nor Medicare, which is the largest buyer, has any say in how much the manufacturer can charge for it."

There are other reasons, too: For a long time, he says, people with insurance have been shielded from most of these costs. But that's changing, as deductibles rise and some patients are responsible for a larger share of their out-of-pocket costs.

And finally, there's the fact that when people are facing cancer, they want the best treatment available. "Even if the drug works for a short time or in a small percentage of people, we want it to be our parent who will actually benefit from it, so we are willing to do everything and anything to make sure the drugs are available," Rajkumar says.

Is there anything we can do to stop this increase?

Rajkumar and the other cancer doctors say: Yes, there are several things we can do to curb the rise in cancer drug prices.

First, Medicare – a major purchaser of cancer drugs – should be able to negotiate prices with drug companies that are proportional to the value that new drugs provide, he says. That change, he says, "would make us come in line with other developed countries, where some negotiation on price always happens."

The trade group Pharmaceutical Research and Manufacturers of America, or PhRMA, counters in a blog post that negotiation already occurs between Medicare Part D purchasers and drug manufacturers, resulting in rebates of up to 20 to 30 percent for brand name medications.

Second, Rajkumar says we need value-based pricing, meaning, the price of a drug should reflect the value it provides. So if a drug prolongs life by a year, and the patient spends two months suffering with side effects, the FDA, Medicare, or an independent panel could take that fact into consideration when setting a starting price for the drug.

Third, it shouldn't be illegal for patients to import cancer drugs for their own private use from Canada or Europe, where medications are generally cheaper, Rajkumar says, particularly if the patients are willing to take on the risks and benefits.

In an e-mail, PhRMA spokeswoman Holly Campbell says there's no evidence that importing drugs will save consumers money, but there is mounting evidence that buying drugs outside of the FDA's regulatory system could be dangerous to patients' health.

Rajkumar argues that for people whose lives are threatened because they can't afford the expensive drugs in the U.S., "it's unfair to tell them that they can't buy it from some other country and use it, if they are willing to take on the risk that the product may not be exactly the same standard as the U.S."

The California Association of Health Plans, which represents the state's insurance industry, is also sounding the alarm about the rising cost of cancer drugs. These increasing costs are contributing to higher insurance premiums, CEO Charles Bacchi says.

Bacchi says his organization supported a bill in the state legislature - AB 463 - that would have required pharmaceutical companies to be more transparent about how much they spend on research and development, marketing and advertising. It was authored by Assemblyman David Chiu (D-San Francisco). 

"Transparency is a critical first step in understanding why these drugs are priced so high," Bacchi says. 

PhRMA and a number of pharmaceutical companies opposed the bill. PhRMA argued that it would be impossible to deliver some of the data, and that other information would be proprietary.

The bill got two public hearings in the Assembly Health Committee this spring, but a spokesman said Chiu pulled the bill from further consideration to buy more time to build support for it. Chiu plans to try again when the legislature reconvenes in January. 

By focusing on the high cost of cancer drugs, are we missing a bigger problem?

That's one argument I've heard, in response to the cancer doctors' recent article.

Responding to the cancer doctors' article, PhRMA argues that cancer drugs represent just one-fifth of total spending on cancer treatment.

Linda House, president of the Cancer Support Community, an international nonprofit cancer support group, takes a similar position, saying that costs in other aspects of the health care system also deserve scrutiny, like hospitalizations and re-hospitalizations, and expensive tests and X-rays that may or may not be necessary.

"We feel like this heavy focus on drugs and trying to bend the cost curve of spending on drugs minimizes the importance of the comprehensive view that we all need to take on the rising cost of care," she says.

Rajkumar acknowledges the health care system has a lot of financial problems, but he says that's not a reason to ignore one of the drivers of cost. He says he and his colleagues are focusing on the rising cost of cancer drugs - and its impact on patients - because it's an issue they confront everyday. 

"This is something we took on only because it was glaring at us in the face and it’s something we thought we should highlight," he says.

Have you or a loved one been impacted by the high cost of cancer treatment? Please share your experience with our Public Insight Network.