Why is the cost of cancer treatments growing so much in recent years? A new paper in the American Journal of Managed Care (AJMC) by my at Precision Health Economics colleague Jesse Sussell and co-authors (2019) has an explanation using data between 1997 and 2015 on cancer prices and the size of each treatment’s indicated population using both the IQVIA National Sales Perspective (NSP) data and the Medicare Current Beneficiary Survey (MCBS). They find that:
…prices have roughly tripled, whereas average patient counts per therapy have fallen by 85% to 90% over this period. However, the entire distribution of annual revenues has fallen: For instance, median revenues for drugs launched in the early 2010s are about half of what they were for drugs launched in the late 1990s.
The authors also argue that market power doesn’t explain these rising prices (and falling revenues):
As a result, revenues have fallen at every point in the distribution, after accounting for life cycle growth in revenues over years since launch. This suggests that price growth is unlikely to have resulted from greater pricing power, at least within this market segment. Profit-maximizing firms with more pricing power would never willingly make decisions that lead to lower revenues for each drug launched.
In short, therapies are becoming more targeted. Thus, rising prices may be a good thing. Whereas before cancer treatments were given to a large number of people for whom only a small share of people would benefit. Now that cancer therapies are much more targeted, only the patients who will benefit from the therapy get the treatment. To offset the reduced indicated population, drug companies have raised prices but not in a way that was sufficient to offset the smaller populations targeted.
The study makes a major contribution for understanding how patients and payers can complain about the rising prices, while manufacturers can rightfully argue that the prices need to be this high to maintain revenues.
- Sussell J, Vanderpuye-Orgle J, Vania D, Goertz H-P, Lakdawalla D. Understanding Price Growth in the Market for Targeted Oncology Therapies. AJMC, June 2019.