Value-Based Approaches to the Rising Costs of Cancer Drugs

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The U.S. is underperforming [in matters of drug value] compared with other developed countries. For both branded and generic drugs, we spend more per patient than many other countries, even though all patients don’t have access to these drugs.
— Peter B. Bach, MD, MAPP

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It’s no secret that cancer drug costs have skyrocketed out of control, with some treatments costing as much as $100,000 to $200,000 per year and even upward. This has put tremendous strain on the U.S. health-care system, while causing financial toxicity and bankruptcy for many patients. Peter B. Bach, MD, MAPP, Director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center in New York, has been grappling with this problem for well over a decade. He shared his thoughts about how to go forward with this mission in a Plenary Lecture at the 2016 San Antonio Breast Cancer Symposium.1

“Within a constrained financial system, we have rising spending on drugs. There is no question about this,” he said. “The argument has been that drugs account for about 10% of health-care spending, but that is not true. It is 19%, and that share is rising. Over the past 3 years, drug costs represented the fastest-rising sector of spending, and over the next 50 years, the cost of drugs will outpace Part A and Part B of Medicare at a growth rate of 1% per year.”

It is not uncommon for cancer drugs to cost $10,000 per month, Dr. Bach continued. Since 1970, when adjusted for inflation, the cost of drugs has gone up 100%.

“Old drugs are rising in cost too. Some very important drugs [off patent] were bought by Valeant, and their prices were hiked. Some of these drugs are sold only by Valeant, so they have a chokehold on the market, similar to what happened with the EpiPen marketed by Mylan a few months ago,” he explained.

“Packaging is another factor that increases costs,” he continued. Some drugs that need to be taken in minuscule amounts are only sold in much larger volume or in vials that add to the cost of the drug.

“This is all new—or is it? In 1998, the Reagan administration refused to cover the cost of tissue plasminogen activator at $2,000 a dose. Think of that now, when some drugs cost at least five times that amount,” he told listeners.

“Importantly, as the cost of drugs rises, the value, which incorporates both benefits and cost, falls,” Dr. Bach stated. “The iPhone has a rising value, whereas the value of imatinib (Gleevec) is falling.”

Drug prices are rising faster than a year of life is gained. Currently, some cancer drugs cost $250,000 per life-year gained, whereas not that long ago drugs were being approved at about $50,000 per life-year.

Why Should We Care?

“We should care because this matters for patients. The United States is underperforming [in matters of drug value] compared with other developed countries. For both branded and generic drugs, we spend more per patient than many other countries, even though all patients don’t have access to these drugs. We rank near the bottom,” Dr. Bach said.

Many patients have problems getting their cancer drugs in a timely manner. There is a median of more than 40 days lag time in getting access to medications due to copays for cancer drugs. Some patients are filing for bankruptcy due to the cost of their cancer drugs, and some of them are insured patients.

Health-care plans have high deductibles, and patients have to pay out of pocket until they reach a certain threshold. One study showed that 26% of insured patients had trouble paying their bills.

Going Forward

“Some fundamentals are not going away [under the Trump Administration],” he stated. “Rising prices on drugs will keep making headlines and harming patients. New policy directions will expose patients to more rising prices,” Dr. Bach predicted.

Many organizations are calling for value-based pricing.

“Health insurance is stripped down as to what it delivers. Deductibles and co-insurance are rising, while worker wages are flat. More and more people are being asked to pay out of pocket, at least early in the year. Under the Affordable Care Act, 37% of patients are exposed to more than one-third the cost of a drug,” he continued.

“The Republicans tend to favor ‘skin in the game’—personal responsibility for health care. They like the market and believe in supply and demand, which are synonyms for increasing the patient’s portion of prices,” Dr. Bach said.

He outlined three different approaches for reducing the costs to the system:

  1. Reduce the cost of benefits
  2. Reduce unit prices
  3. Shift costs onto patients, while nobody is noticing.

The supply-and-demand approach is to use market forces to lower drug prices, similar to the way competition lowers prices for commodities like high-definition televisions or cars. “There is little evidence that this will work. You need many suppliers and competition, and that is lacking in branded drugs. Studies show that branded drugs decline only by 2% when a new branded drug enters the market. Even with biosimilars, expect them to be 15% below branded prices,” Dr. Bach said.

“Doctors and hospitals make money on drugs. They buy at a discount and charge at a markup. The system encourages high pricing,” he explained.

Another approach is called “solve for price,” and this refers to accepting the fact that drugs are expensive and using value-based pricing that is outcomes-based or performance-based. “Using this approach, determine how well a patient does on a drug. If the patient responds, pay more. If not, pay less,” he explained.

Novartis is using this approach with sacubitril/valsartan (Entresto), a heart failure drug. Some companies have contracts like this, where the price of a drug is tied to how well it works.

Value Frameworks

Existing value frameworks can be used to define prices according to specific features. An example of this is the DrugAbacus developed by Dr. Bach. This interactive tool allows comparisons between the company’s price and one based on value for more than 50 cancer drugs (

“With this tool, you can manipulate how much these drugs should actually cost,” he told listeners. “This helps us think about what pricing would look like if value were incorporated into the price. It is an intellectual experience. For example, what would you pay for a drug that treats a rare disease? The more you pay for one drug, the less you can pay for others.”

The Institute for Clinical and Economic Review, a Boston-based, independent nonprofit organization, has also developed a value framework that proposes a budget impact threshold, above which a drug or product would likely contribute significantly to excessive growth in health-care costs.

Dr. Bach said that although other value-based frameworks are being developed, the ASCO value framework will probably be adopted at the point of care in the United States. This framework assesses the value of new cancer therapies based on clinical benefit, side effects, and improvement in patient symptoms or quality of life in the context of cost.

During the question-and-answer session following Dr. Bach’s talk, a patient advocate in the audience suggested that if doctors and patients all sold their pharmaceutical stocks, that might make a difference. Another audience member pointed out that the rising cost of drugs is, in part, due to artificial expiration dates, packaging waste, and manipulation of sales.

Dr. Bach said, “This is a dynamic situation. Drug companies will make every attempt to increase their revenue. If you are running a drug company, you want to identify new patients for a drug or raise the price for people who need to take it.” ■

He concluded, “It’s an uncertain political time. It is difficult to predict where these forces will prevail.”

Disclosure: Dr. Bach reported no potential conflicts of interest.


1. Bach P: Global cost of cancer care. Plenary Lecture. 2016 San Antonio Breast Cancer Symposium. Presented December 9, 2016.