The High Cost of Cancer

EconTalk Extra
by Amy Willis
Vincent Rajkumar on the High P... Jerry Muller on the Tyranny of...

drug scales.jpg If you or someone you love is stricken with cancer, you'd do anything to prolong their life, wouldn't you? To what extent will your response depend on the cost of the treatment available? In this week's episode, EconTalk host Russ Roberts welcomes Mayo Clinic oncologist Vincent Rajkumar to talk about the seemingly exorbitant cost of cancer-fighting drugs.

1. What's the "philosophical challenge" Roberts raises at about the ten minute mark (but which persists throughout the episode) regarding the effective use of money to make life better? Where do you stand with regard to this question, and why?

2. What does Rajkumar mean when he says, "doctors [generally] don't want to take on the value proposition?"

3. Rajkumar insists he is not putting the blame for the high cost of cancer drugs soley at the feet of Big Pharma. Why isn't he, and to what extent do you think he's right? How does Rajkumar's perspective compare to that of previous EconTalk guest Robin Feldman?

4. Both Roberts and Rajkumar seem to find it easy to understand why cancer drugs are so expensive. They discuss the infamous case of Martin Shkreli. What (alternative) service does Roberts suggest he provided? To what extent is the public's outrage toward Shkreli well placed, and why?

5. Roberts and Rajkumar conclude the conversation discussing possible reforms. Which of their varied suggestions do you think would be the most effective? Which is/are most likely to actually happen? Do you have any additional suggestions for reform, and if so, what?

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CATEGORIES: Extras (203) , Health (65)

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COMMENTS (4 to date)
anthony perry, md writes:

I just listened to your discussion on the high cost of cancer drugs. It was interesting. I have somewhat different perspective, but not related to cancer drugs, a subject about which I am minimally informed, but perhaps my comments could be related.

I am a retired internist, age 79, retired in 2015, graduated from med school in 1964. My practice was focused on diabetes treatment so I am well informed about the diabetes drug market, which seems to be somewhat analogous to the cancer drug market, although on a smaller scale price wise.

I will focus on the case of blood glucose test strips, not really drugs, but a related situation. Testing blood glucose is very helpful for management of diabetes in general and essentially mandatory for more difficult cases, including all with type 1 diabetes. All insurances cover the cost of the strips and Medicare has covered the cost for some years. The strips are all proprietary in that each brand of meter exclusively uses it own strips. Many different companies make competing brands. For years the meters were expensive, in the range of $100 over the counter in the pharmacy but companies provided large numbers of free meters to physicians to give to patients since the patient's use of a meter brand tied them to that brand of strips and everyone in our business understood that the companies made their money on the test strips rather than the meters. Having physicians dispense the meters was key to the company's getting the test strip market share and physicians liked being the source of freebies for the patients.

Test strips, like drugs, rapidly escalated in price and up until 3 or 4 years ago were selling in the range of $1.00-$1.50 per strip over the counter (no prescription is needed). As mentioned all insurances and Medicare and Medicaid paid for them so that the large majority of patients paid either $0 or a small copay at the point of sale. Those with no insurance, a very small proportion of the patients, who also tended to be poorer, found them difficult to afford especially if 3 or 4 strips a day were needed.

One small saving grace in this scenario was that Walmart sells a Relion brand of meters and test strips, which are very cheap. These meters are accurate and essentially do the same service as the costly other brands. These meters sell for under $10 and the strips are in the range of 15-20c a piece, much more affordable. It is my understanding that these meters and strips are made for Walmart by a Japanese company. It is very clear from this observation that the cost to manufacture the meters and strips is very much lower than what they are being sold for by the major brand name manufacturers.

The point I'm trying to get to in this long explanation is that in my former practice, in which I saw numerous patients with diabetes each day, the great majority of whom were doing regular blood testing, certainly less than 5%, and probably more like 1-2% were using the low cost test strips. The reason for this is that the cost for the great majority of patients for the expensive strips was either $0 or minimal and it made no sense to purchase the cheap strips, whatever the price.

At present I work in a free clinic a few hours a week seeing diabetic patients. This clinic caters exclusively to patients who have no insurance. These patients use nothing other than the Walmart meters and strips. Major brand companies give us free meters to dispense but these are of no interest to those who must pay for the strips.

It is also noteworthy that there has been a notorious wastage problem with these test strips in that many patients have received supplies of strips that they do not use or give away to others. This has resulted in regulations by insurance companies and Medicare that limit the numbers patients can receive. However such regulations, since they cannot be individualized, result in inconsistencies, some patients continuing to waste strips and others not receiving an adequate supply. The regulations also cause a hassle factor for medical providers who often must do additional paperwork and phone calls to comply.

I strongly believe that a fundamental problem with the high price of our medical care is our reliance on third party payment and the government policies that either encourage or provide this system outright. I am very skeptical of the value of the regulatory solutions offered by your guest since, by its nature medical care must be highly individualized. I offer this as one very small example of the waste and abuse that is inherent in system which divorces purchasers of medical services from the cost of the services.

I could provide similar experiences and commentary with the large list of diabetic medications which are now available and are all tending to be very costly. However I've gone on too long already. I hope my comments will be of interest.

krishnan chittur writes:

Re: Anthony Perry - I agree, if someone else pays for the medical device/medicines, costs go up (in general). I heard recently how the costs for many generics (and others) have gone up because of "Obamacare" - more people got "insurance". So when "someone else" pays, companies feel free to raise prices and ultimately it raises prices for all, for all of us.

I would not want to see innovation strangled in the name of lowering prices - but I found fascinating that the system we have now is such that it removes the incentives to innovate (!) ... when companies know they can make small changes to existing chemicals and get multi year protection for their chemicals even as those chemicals have minor improvements.

Tom McKee writes:

Thanks for hosting a session to explore the topic of the price of drugs, specifically cancer drugs. Dr. Rajkumar has a good perspective. The topic of the cost of drugs, like the rest of our healthcare costs is relevant today and, in-fact, it approaching crisis level criticality.

The problem is the pricing model. The pharma pricing model is "whatever you have". If we ask how much it costs, the pharma answer is "how much do you have?" We tell them how much we have by presenting our insurance card.

This model has driving healthcare costs to the point that health care "insurance" costs 20% ($500/month) of the median individual income ($2500/month). This is not affordable for individuals. As a society, we cannot afford to have the government subsidize essential costs for the median income individuals. It is not sustainable.

The answer is to reform the market structure to move away from the "reasonable and customary" and 'how much to got" and "what is your life worth". These are phrases used by extortionists. We need to have the Pharma companies set a price for their drug once per year and register the price with the US Government.

We also need to set some basic rules on discounting. If a drug company discounts their drug for one person, the discount applies for everyone during that year. It must rebate the discount to those that have already paid. This will enforce a competitive market operation.

In addition, we need to set some boundaries on the vertical integration of pharma industry. Pharma production needs to be separated from Pharma research and intellectual property. We should not allow exclusive production rights. Market forces will drive innovation in production efficiency, driving down prices. Drug intellectual property licencing prices will need some rules also. The basic rule is that the company will need to set the license price when the drug is approved and then can only decrease it over time.

One of the major cost drivers in research is the drug approval area. This process is not only costly, it has produced some major mistakes resulting in loss of life and drugs being pulled from the market.

This process needs to evolve to an approach that uses big data concepts and patient monitoring. Many devises exists to monitor vitals and can be delivered via cell phones. This type of data can be used to not only approve new drugs but compare effectiveness with older treatments.

The outcomes data needs to be public information with patient information masked. This will enable scientific scrutiny, comparison across competitive products, and public accountability.

Thank you for your attention

Patrick writes:

I have seen a similar problem with the price of for Hepatitis C treatment.

When a Medicaid patient came to my office for a first appointment because his liver enzymes were found to be elevated with an emergency department visit. The work up indicated that he had Hepatitis C, even though all the confirmatory tests were positive, there was no cirrhosis demonstrated on the liver ultrasound so his hepatitis C treatment was denied. I offered to appeal the decision or at least do serial liver scanning so that if there was any change we could try to get Medicaid to pay for the treatment but the patient refused to see me again.

I understand the position of the state with the explosive spending for Medicaid and although paying the full price of chemotherapy for a cancer patient may not place too much pressure on the Medicaid system because the numbers are small. If we did follow the recommendations that the drug manufactures recommend for Hepatitis C screening, we may find larger numbers who would benefit from treatment which could be much more expensive.

I’m not sure about the morbidity difference with treating Hepatitis C in patients without cirrhosis verse those in early stages of cirrhosis; but my preference would be to treat before there is evidence of cirrhosis because my Medicaid patients tend to be the most noncompliant and unreliable to follow up.

I wonder if Dr. Raj Kumar’s insight about allowing Medicare to negotiate prices could also be applied to Medicaid with states being allowed an exception to purchase equivalent medications from other sources.



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