Why is cancer treatment so expensive?

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One of our oncologists answers the often-heard question, “Why is cancer treatment so expensive?”

Some try to create cost algorithm based on survival benefit of a drug on cancer care (Tools), others are trying to legislate lower costs, while still others reach out for subsidies from the eternal fountain of taxpayer wealth. Life in these United States is indeed interesting.

While searching for a gradient to seek the fissures of thought, here are a few broken down by category:

Drug development: The claim is that bringing a new drug to market is valued at $2.6 Billion (of which $1.2 Billion are time costs)①.  Incurred in this cost is the old premise that of the 5000 drugs tested only one enters the market, showing benefit in the petri dish, mouse model and then through human Phase I and II trials leading to FDA approval. That $1.4 billion in actual expense is amortized over the next 7 years of patent protection with a certain Return on Investment or ROI for the risk undertaken by the company. There are quite a few “wrong-headed methodologies” in use there②.

Insurers: The Insurers make money and the cost to insurers is defrayed easily by the price of the premiums. In essence for all the talk of “Risk Mitigation” from the insurers, there is little risk involved to them, except the agency risk of losing a bonus for the managers should the benchmark of the stock price not reach the intended target. Overall unless you happen to take some real wild risks like AIG with Credit Default Swaps and the like, your chance as an insurer of an extremal event is nigh impossible③.

Supply and Demand: If a drug is developed for a condition that afflicts only a few souls, it is given an orphan drug status. The price of the drug development will always be high to amortize the drug development costs. But a drug for an affliction of the masses should not be that expensive. The case in point is a company named Dendreon and their drug product Provenge used for advanced Prostate Cancer. The Provenge cost was $93,000 per treatment and enhanced survival by only 4 months led to the eventual decline in the fortunes of that company into a bankruptcy④. The fault line in this exceedingly pure appearing surface had been exposed. But there were two important lessons from that case; one, the concept of using immunity against malignancies and two, careful how you price the product with limited benefit.

Oncologists in delivery of care: Much is made of the physician who uses the expensive medicine for his or her own benefit and employs excess diagnostics. Fortunately except in a select few unfortunate cases, the majority of the physicians use diagnostic procedures to differentiate actual illness and use cancer drugs based on the data they have for the fullest benefit to their patients. This might appear a heresy to the journalists since it does not follow their narrative, but based on talking with my colleagues, the foregoing is a fact. The problem in most cases is the transparency of the drug cost itself. We as oncologists offer treatment on the basis of the best benefit against the malignancy and not necessarily based on cost to benefit ratio. We are after all doctors and not businessmen or women. Our purpose is to heal. And therein is the crux of the matter. Big Pharma and Biotech companies know our ethos and price their products according to their Cost (both real and imagined) plus ROIs. Unfortunately more often than not the “studies” being quoted are based on a low “n” and tortured statistics of assumptions. The studies are touted as the next best thing since sliced bread, when they are not ⑤!

Mini-incrementalism:  There are very few large leaps in oncology patient care, more of the medical literature litters the landscape with mini-incrementalism in benefits through the now in vogue use of Progression Free Survival or PFS. Unfortunately half of those studies cannot be verified or validated. The purpose in some of these studies is a continuous source of incremental revenue. This is by far the most destructive force in medicine today.

800lb Gorilla: The Insurer-Lobbyist-Expert-Middling-Manager remains the big culprit. Realizing that from 1970 to 2009 physician population increased minimally in spite of the total population of the United States that grew to 320 million, the administrators however grew by over 3000% according to the Bureau of Labor Statistics (BLS)*.

The only way to apply the Supply – Demand metrics to the oncology dilemma is akin to creating a skin in the game for the two main entities concerned; the patient and the physician. If the patient cannot afford the medication then the volume will dry up and the cost of the product will of necessity go down as long as the intermediaries are not in the process of processing these payments and extracting their bounty. If the doctor educates him or herself in the statistical nuances then he or she will not be hoodwinked either from using the right drug for the right patient. Market forces play their part. China as an example rejected the patent for Solvadi (drug against Hepatitis C) while India and France successfully negotiated the cost at 70% less⑥. A note of caution; using mandated price controls is a top-down measure that never achieves its objective of cost reduction but in effect becomes the force du jour for control of care.

Tools http://jco.ascopubs.org/content/early/2015/06/16/JCO.2015.61.6706

http://www.nytimes.com/2014/11/19/upshot/calculating-the-real-costs-of-developing-a-new-drug.html?_r=0&abt=0002&abg=1

http://www.citizen.org/publications/publicationredirect.cfm?ID=7065

http://www.businessinsider.com/michael-lewis-on-aigs-stupid-stupid-cds-business-2009-7

http://dealbook.nytimes.com/2014/11/10/dendreon-maker-of-prostate-cancer-drug-provenge-files-for-bankruptcy/

http://www.forbes.com/sites/matthewherper/2014/10/05/60-minutes-just-attacked-high-drug-prices-heres-what-you-should-know/

http://blogs.wsj.com/pharmalot/2014/09/15/gilead-deal-to-sell-sovaldi-in-poor-countries-meets-criticism/

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