Is Value-Based Pricing the Solution to Controlling the Cost of Oncology Drugs?

Meg Barbor, MPH

February 2017, Vol 7, No 2 - Care Delivery

Anticancer drugs should be priced based on the value they deliver to patients, according to Peter B. Bach, MD, Director, Center for Health Policy and Outcomes, Memorial Sloan Kettering Cancer Center, New York. “The prices have gotten to a scale that they’re actually harming the people the products are intended to help,” Dr Bach said at the 2016 Annual meeting of the Hematology/Oncology Pharmacy Association Oncology Pharmacy Practice Management Program.

Dr Bach said there was a nearly 100-fold increase in the monthly cost of cancer drugs over the past 50 years, after adjusting for inflation. However, he argues that drug prices should be linked to their value, and if the same drug works for 2 indications, but with varying degrees of efficacy, the price should vary accordingly.

Dr Bach has developed the Evidence-Driven Drug Pricing Project, better known as DrugAbacus (, a tool to assess the value of cancer drugs.

“The goal of the project is to sift through the issues we have in drug distribution channels and payment in the quest for a system that’s more rational, where prices travel more appropriately with the attributes and benefits of drugs,” said Dr Bach.

Is the Rise in Cancer Drugs Cost Linked to Clinical Outcomes?

According to Dr Bach, it is fair to ask whether the 100-fold price increase is married to a 100-fold increase in other types of improvement. “We’re certainly making progress in cancer, so the question would be whether that rise is commensurate with the improvement in what we’re buying,” he said. However, the answer to that question is a resounding “no,” he suggested.

In the past 20 years, new drug prices have been linked to survival gain, but society has seen only diminishing returns in that space. “Twenty years ago, the cost of a drug in terms of life years delivered (in today’s dollars) was $50,000; today it’s $250,000. So each unit of gain is costing us more than the step before,” Dr Bach said.

The pathway for a drug getting from the pharmacy to the patient involves insurance, and insurance costs have steadily risen as well. In addition to the rising cost of deductibles, coinsurance creates a burden by requiring patients to pay a percentage of the total cost of their drugs, rather than a flat copay.

“When patients are paying 10% of the price of a drug, it makes a huge difference if that drug is priced at $9 or $90,” Dr Bach pointed out.

Some argue that the United States pays more for drugs in exchange for better access, but Dr Bach refuted that argument, citing studies showing that this country spends the most per patient with cancer on drugs, even though it has the lowest penetration of anticancer drugs across the cancer population.

Another common argument is that drugs only account for approximately 10% of healthcare costs. He argued that not only is this estimate wrong, and drugs actually account for 14% to 22% of healthcare costs in the United States, but “even if it were 10%, that’s not holding.”

“For the last 3 years, the inflation rate on drug spending has exceeded that in every other major sector of healthcare. Also, 10% of healthcare is $400 billion, so it’s probably worth discussing,” he stated.

Others say that the FDA is to blame for high drug prices, but Dr Bach said this argument is implausible, stating that evidence in favor of this would be longer time to drug approval, lower approval rates, larger sample sizes, and more rigorous end points.

“But it’s the exact opposite at the FDA. Approval rates have gone up and are at epically high levels,” he said. In other words, the FDA is essentially approving everything.

Still, others argue that prices are high, but that competition will eventually correct the situation. However, Dr Bach argued that inflation catches up with any competitive effect within the first 4 months of a year.

Finally, some believe that generics will balance out high drug prices, but generic price inflation undermines that argument.

“And we know companies do things like pay for delay, evergreen their products, or do a pediatric trial in a drug that will never be used on children in order to get longer exclusivity,” he said.

“So we’ve been working on a different approach to pricing. It’s based on the idea that the current pricing system is broken, and that these solutions and problems that have been identified are false,” Dr Bach added.

Drug Pricing

The DrugAbacus is an interactive tool that allows users to compare the actual prices of >50 anticancer drugs to prices calculated according to value. Dr Bach calls this method “value-based pricing.” As opposed to price-fixing, this method is optional for manufacturers and users, but could pave the way toward a better drug-pricing structure.

“The trick to the DrugAbacus is that when you change how you want to price a drug, it changes it for all of the drugs at the same time. It requires cogency, the same theory around payment for all [anti]cancer drugs,” he said.

Right now, most insurers respond not to the connection of the price to the value of the drug, but purely to the price. So, in theory, appropriate pricing would also lead to the appropriate type of insurance coverage for patients.

“Value-based pricing is based on a very pure economic principle—that all goods in a marketplace should be sold at fair, appropriate prices based on what they deliver. We have so many market failures in healthcare insurers separating consumers from the true price, asymmetry of information, patients’ lack of certainty around a product and what it will do for them, but the core notion is to cut through those problems and come up with prices that make sense,” Dr Bach concluded.