Drug prices and some other issues related to spending on cancer treatment

David HowardDepartment of Health Policy and Management

Winship Cancer CenterEmory University

david.howard@emory.edu

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

Drugs in development according to PhRMA

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Source of survival benefit:Trial, overall survivalTrial, progression-free survivalModelling study

The best fit line is: Price per life year gained = $54,100 + $8,500 × Approval year.For purposes of display, we re-coded one value from $802,000 to $400,000.

Figure 2: Price per life year gained versus approval date

Howard et al. Pricing Anticancer Drugs. Journal of Economic Perspectives. 2015.

• 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 process of price setting

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)

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

What is the right price?

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

Company run patient assistance programs: private insurance

Foundation-run patient assistant programs: Medicare/Medicaid

Patient assistance programs

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-patients/

Biosimilars

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Figure 0: Patients receiving IMRT by provider type

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 KetteringLee Newcomer, Medical Director, US HealthcareJennifer Malin, Medical Director, AnthemRena Conti, University of ChicagoAnd, 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.aspxInstitute for Clinical and Economic Review

Resources

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 pre-

approval 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 Britain’s 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