Spending on Oncology Drugs
The rising price of new oncologic pharmaceuticals attracts an enormous amount of scrutiny. As stated previously, approximately 10% to 15% of oncology spending is devoted to drugs. The rising rate of spending on oncology drugs appears to be increasing faster than other areas of healthcare.
The evolution in treatment patterns for management of colon cancer over the last 15 years has been a commonly explored example of changes in drug cost.[10,11] Over the past 15 years, the median survival for patients with metastatic colorectal cancer has improved from approximately 8 months to nearly 2 years. This progress has not resulted from use of one particular drug or drug combination but rather from the sequential use of more than one active regimen. The newer drugs used in these regimens include irinotecan(Drug information on irinotecan), oxaliplatin(Drug information on oxaliplatin) (Eloxatin), capecitabine(Drug information on capecitabine) (Xeloda), bevacizumab(Drug information on bevacizumab) (Avastin), cetuximab(Drug information on cetuximab) (Erbitux), and panitumumab (Vectibix). The cost of 8 weeks of the Mayo regimen using the older drug combination fluorouracil(Drug information on fluorouracil) (5-FU)/leucovorin is approximately $63. This cost increased to almost $12,000 with FOLFOX (leucovorin, 5-FU, oxaliplatin), to more than $21,000 with FOLFOX/bevacizumab, and to over $30,000 with FOLFIRI (leucovorin, 5-FU, irinotecan)/cetuximab. Whether the extended survival achieved with modern regimens is commensurate with their added cost is a central concern among many payers, clinicians, and policy makers.
Currently, it is estimated that there are more than 100 new oncology drugs in phase III trials. It is logical to conclude that the proportion of spending on oncology drugs is likely to be a greater driver of cost in the future. Many new agents are expected to have narrower applications as compared with novel agents developed over the last one to two decades, which may mitigate some of the effect on total drug spending.
It is notable that the pharmaceutical industry retains the capability to unilaterally determine the price of drugs coming to market in the US. This contrasts sharply with hospitals and physicians, who historically have had much less control over the price of their services. Additionally, no cost-effectiveness standards are included in the FDA approval process for new drugs. Prices of new therapeutics can easily exceed $5,000 to $8,000 per month.
Nevertheless, new drug development is the sine qua non for progress in medical oncology. While we aggressively seek the benefits of biomedical research, we are ambivalent about paying the price. Biomedical research, and particularly oncology research, is enormously expensive. Potentially as few as 5% of cancer drugs tested in phase I trials ultimately go to market, making oncology the laggard of any therapeutic category in this regard.
How expensive is drug development? DiMasi et al examined this question nearly 10 years ago. Drug development includes several phases: discovery and preclinical development; and phase I, phase II, and phase III trial testing. To calculate drug development costs, confidential survey information was collected from pharmaceutical firms. Development costs were analyzed in expected value terms since it is necessary to include the costs of drugs that fail to come to market with those of the few that do. A total out-of-pocket expense for the various phases of development and testing was determined. Of the four phases, phase III testing is most expensive. Since drug development takes place over several years, the financial outlay for development must be capitalized at a chosen discount rate. This recognizes that the large capital invested could have been profitably invested in other areas during the period of research and development. The authors used a discount rate of 11%.
The full estimate of out-of-pocket expense per new drug was $403 million. When including the 11% discount rate to capitalize costs, the full cost was estimated to be $802 million. The study focused on development data from the 1980s and 1990s. Given the economic slowdown over the last several years, it may be reasonable to apply a lower discount rate, since alternative investments may not be predicted to return as much as 11%. However, it must also be considered that increases in development costs over time could offset the effect of a lower discount rate. Furthermore, development costs are variable across classes of drugs. The cost for oncology drugs has been estimated to be 20% higher compared with the cost average for all drugs.
The Effect on Patients
Novel therapies reach patients in an increasingly haphazard payment-and-coverage environment. Patient out-of-pocket expense is often prohibitive, and coverage is often restricted. Oral drugs are typically covered under pharmacy benefits, with copayment or coinsurance amounts often far too great for patients to bear. Oncology drugs are often placed on the highest tier by private health insurers. Higher-tier coverage is ostensibly designed to encourage use of lower-cost generics. However, generic substitutes for oral oncolytics are often nonexistent. For drugs infused in the office setting, Medicare patients without supplemental secondary insurance policies face copayment amounts of 20%, which can translate to tens of thousands of dollars per year for more expensive regimens.
As many as 10% of patients abandon their first oral oncology drug prescription. This rate increases to 25% when patient cost-sharing exceeds $500. Medicare patients are substantially more likely to have a cost-sharing amount above $500. Other factors associated with abandonment of oral oncology drugs include lower income and increased prescription activity.
Direct costs extend beyond drugs and include procedures, hospitalizations, radiology studies, and professional services. Indirect costs include lost wages due to either reduced hours worked or loss of employment altogether. More than half of personal bankruptcies are caused at least in part by medical illness and medical bills. Three-quarters of those going bankrupt had health insurance and faced average out-of-pocket expenses exceeding $17,000. Hospital bills were most frequently the largest expense. A national survey found that 25% of patients consumed most or all of their savings in dealing with their cancer and its treatment.
A key benefit of health insurance is to protect individuals from risk of medical costs due to potential future illness. Concerns exist that because beneficiaries are not required to pay the full cost of medical care, they may be encouraged to utilize treatments with limited benefit or cost-effectiveness. Cost-sharing arrangements in which patients bear a proportion of costs are structured to mitigate this problem. The data described above would suggest that this is a highly imperfect process, with often tragic consequences for patients and their families. Patients, particularly those with lower income levels, often simply cannot afford the proportion of cost allocated to them.
How Do Patients Value Treatment?
The benefit of some oncology therapeutics is often viewed as marginal relative to their cost. For example, sipuleucel-T (Provenge) extends median survival of men with hormone-refractory metastatic prostate cancer by 4 months, but at a cost exceeding $90,000 for a course of treatment. It is useful to ask how patients judge the value of therapies when considering coverage and payment issues.
Behavioral science broadly, and prospect theory specifically, have provided constructive models that help to uncover what may matter most to cancer patients. Prospect theory contends that the absolute value of an outcome is not determinative of an individual’s healthcare decisions. Instead, patients value a treatment intervention according to their individual reference point. For someone who expects to live for 1 to 2 years, a 4-month survival benefit may have more meaning than it would for those of us who may expect to live for the next 20 to 40 years. In short, the world begins to look different for patients with cancer. Their reference point changes as they become accustomed to their change in health.
When deciding the value of therapies, those of us without cancer typically try to put ourselves in our patients’ shoes. This process of predicting how we would feel in a given situation is known as affective forecasting. It turns out that we are not very good at this. We tend to exaggerate in both directions. We anticipate a favorable circumstance to be better than it truly is and an unfavorable circumstance to be worse than it truly is. All of this urges some caution for those of us who are not patients when making judgments regarding the value of therapies.
Median gains in overall survival may be a flawed metric in deciding the value of a particular therapy. For many cancer therapies, the concept of small probabilities of large gains may be more appropriate to a patient’s actual decision-making.[4,20] High-dose intereukin-2 for metastatic renal cell carcinoma has been a long-standing example of this proposition. Only a minority of patients benefit from this potentially toxic therapy, but the few that do often achieve survival extending many years. Ipilimumab (Yervoy), a novel agent for advanced melanoma, may be similar in this regard. Whereas median overall survival benefit may be approximately 4 months, patients demonstrating a response to ipilimumab may maintain this response for years. Patients confronting a fatal disease may prefer a “hopeful gamble” over a sure bet. In fact, patients appear to place independent value on a chance of large benefit over a more predictable but more modest improvement in average survival.
The Cost of Oncology Care: Part II
In Part II of this article on the cost of oncology care, I will examine what measures can be taken to reduce cost while avoiding or minimizing the sacrifices of quality, access, and innovation. This will include both broad, conceptual viewpoints being proffered and specific, actionable programs that are currently being piloted.
Financial Disclosure: The author has no significant financial interest or other relationship with the manufacturers of any products or providers of any service mentioned in this article.