Spiraling Prices

Source: Harvard University

Pharmaceutical companies sometimes charge so much for cancer drugs that even insured patients cannot afford their 20 percent co-payments—on what can be $100,000/year medicines. Sometimes, in order to pay for cancer drugs, patients stop taking other vital drugs, or cut back on food. This is a major concern for Hagop Kantarjian, Chief of Leukemia and full professor at the MD Anderson Cancer Center in Houston, Texas.


Spiraling Prices for Cancer and Specialty Drugs

In a remarkable campaign, Kantarjian recruited over 100 cancer specialists to describe how exorbitant prices keep them from giving good clinical care because their patients cannot afford to take their medicines. The New York Times made this front-page news.

The synergies of being at the Safra Center include calls or emails out of the blue from creative and productive people, like Kantarjian, who asked if we could “write something together.” We talked about medicine’s mission to help and heal those who are ill, injured, or at serious risk. Pharmaceutical companies also embrace this goal in their mission statements. Yet their pricing of cancer and other specialty drugs undermines that mission. We explain how in a new policy analysis, published inCancer and titled “Market Spiral Pricing of Cancer Drugs.”

Our policy analysis points out that drug companies keep raising the prices on even older cancer drugs, by an average of 20-25 percent a year, up to ten times the rate of inflation—and then setting the prices of new drugs above that ever-spiraling baseline for older drugs. We call this the “market spiral pricing strategy” of pharmaceutical companies. It undermines the mission of medicine and harms patients.

Prices are doubling every five years. Yet most new cancer drugs offer few advantages over older ones. Thus pricing cannot be based on added value, as companies and their allies claim. Nor, we show, can it be based on recovering the inflated estimates of companies’ research costs, especially given the free ride they get from publicly funded research and taxpayer subsidies. We conclude that net, median research costs for companies are about one-tenth the amount they claim. Marcia Angell made a similar analysis in her famous book, as did Public Citizen, a consumer advocacy organization, in a 2001 policy paper.

Companies are developing hundreds of new drugs for cancer and other life-threatening diseases, because they arranged a provision that prevents Medicare from negotiating volume discount prices and requires it to pay whatever the companies decide to charge. The popular misconception that high-priced medicines must be highly effective keeps companies prospecting for cancer-drug gold. Most of the drugs they develop, however, fail to meet the minimal criteria for FDA approval, but even those approved are usually little or no better than existing drugs. This reflects FDA policy and criteria, as explained in a recent overview in the Safra special issue of the Journal of Law, Medicine and Ethics.  Cancer drugs are also unusually toxic, making patients suffer miserably. That might be worthwhile if the new drugs reduced mortality, but they usually do not.

Drug companies also use gross profits in at least four ways to bias market forces. First, they fund and “educate” patient groups so that they act as pressure groups that make it difficult for insurers or other payers to object to prices of $100,000 and up. Second, they retain leading experts who get new drugs into clinical guidelines that insurers and Medicare have to observe. In these ways, they have the payers surrounded. Third, they retain leading specialists to promote their new drugs. Fourth and finally, they fund large clinical trials that have no scientific goal, but pay hundreds of specialists, as members of the “research team,” to recruit and monitor their patients as “subjects.” These are known as “seeding trials” because they seed the market and sprout more sales. Unlike many countries, the U.S. lacks an official, arms-length evaluator that would assess the added clinical value of new drugs. In other affluent countries with advanced health care, insurers work with government to negotiate prices for cancer drugs and pay about one third of U.S. prices. The American “free market” is a free market of high prices and misinformation, protected by government regulations and laws, in a sellers’ market which FDA practices promote. Then U.S. insurance companies “control the cost of cancer drugs” by passing on 20 percent to patients in the form of a co-payment. Co-payments are dis-insurance, an insurer’s cop-out for not bargaining for an affordable price. Sick patients become impoverished in a unique American set of practices that serve special interests and contribute to about half the personal bankruptcies in the United States. Perhaps “market spiral pricing” will get the attention it deserves.

 

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