Influences on Rising Oncology Drug Costs

I recently tuned into 60 Minutes to watch a segment on oncology drugs. This episode was of great interest to me since I have served as an administrator at a large oncology practice in Ohio for the past several decades. Long before this segment aired, however, I had been formulating my thoughts on the evolution of drug pricing and purchasing practices. During this time, I have observed a strong relationship between multiple levels of the healthcare system that fuel drug costs and purchase practices in community cancer centers in the United States. The practice of pricing drugs is a complex and often confusing process, and there are several trends that seem to contribute to rising healthcare costs.

Drug Pricing, Supply, and Demand
I have recorded price increases over the past decade for drugs used by our oncologists. In reviewing these records, I found that, since enactment of the Medicare Modernization Act (MMA) in 2003, prices on branded oncology drugs have increased approximately 1 to 4 times a year based on average sales price (ASP). The only exception to this price pattern occurred in the first quarter after sequestration when the pharmaceutical industry struggled to forecast the impact of price increases on sales.

The pricing of cyclophosphamide provides a clear example of this as well as the impact pricing volatility has on the industry at all levels. In the past, several drug manufacturers were producing this drug, and in this environment of ample supply and price competition, the price of cyclophosphamide declined. In 2008, it was available for approximately $20 per gram; over time, however, with minimized competitive dynamics in place, the cost of this drug has escalated to its current level, at the time of this writing, of approximately $600 per gram.

Oncology centers have endured these price increases due to the centrality of this drug in the adjuvant treatment protocol for breast cancer and other key regimens, even though its cost has had a negative impact on the bottom line. Patterns such as these—ie, price increases in an unrestrained market environment—have a critical impact on healthcare industry costs, with primary service providers bearing the lion’s share of the burden.

In another example, the pricing of monoclonal antibody blockbuster drugs like trastuzumab and rituximab have risen substantially. Since their introduction into the battle against cancer many years ago, the prices for these 2 drugs have nearly doubled. Drugs that were—for a time—in short supply also add to this discussion. Current prices for some drugs are more than double the pricing levels at the time the shortages occurred. Simple drugs such as cyanocobalamin, dexamethasone, sterile water for injection, and normal saline are just a few examples of drugs and/or solutions that have experienced dramatic price increases. Normal saline for infusions is still in short supply even though it is a basic, high-use product for treatment infusions. When it is available, pricing on high-use sizes is often elevated, thereby driving up the cost of healthcare in multiple sectors of the industry.

Drug Selection in Community Oncology Centers
Drug purchasing takes place daily in community oncology practices across the country, and individuals making decisions about drug purchasing have to consider multiple factors other than just cost. The cause of including high-priced drugs in oncology practices has very real roots: in addition to the MMA, which introduced a flawed ASP formula into the oncology world, sequestration, complex treatment infusion codes with few paying actual administration costs, and other regulations dictating coding and auditing requirements have driven up operating costs while eroding productivity.

To combat some of the increased costs of doing business, oncology centers may select a higher-priced drug when lower-priced alternatives are available. Drug companies often provide incentives for selecting their higher-priced drug by offering cancer centers financial rebates that help with the center’s bottom line. To an oncology clinic struggling to stay fiscally viable in the face of so many regulatory mandates, selection of the higher-priced drug takes them one step closer to filling their own fiscal gap. This selection then filters down to patients, who may end up with higher copay fees, thus contributing to the cycle of escalating healthcare costs nationwide.

I have enjoyed several decades of productive work in a successful oncology practice. As I approach my own retirement from practice management, I have growing concerns that we are inviting additional regulatory action by the government to interrupt the marketing, pricing, and ordering practices for oncology drugs plaguing the field today. Perhaps it is time for us to learn to self-regulate rather than wait for the government to step in. As the industry matures, managing our own operations so that even the purchasing of drugs is done through the lens of social responsibility will position us for greater success in the future.

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