Can Global Innovation in Oncology be Sustained in the Face of Price Controls?

November 21, 2019

Pricing in the context of patient access and affordability continues to present problems and constitute a real threat to innovation. Meaningful reform involves rectifying market imperfections in public and private third-party prescription drug payment sectors, writes Robert A. Freeman.

There is a persistent belief that patients are “paying too much” for all patented drugs including oncology products. An unwarranted belief that drugs are primarily developed by government funded national research institutes and university research centers also persists, leading some critics to conclude that the industry exploits discoveries that were subsidized by taxpayers.1

Despite these advances in oncology research and development, the issue of pricing in the context of patient access and affordability continues to present problems for the biopharmaceutical industry and constitute a real threat to innovation. As stated previously, the US remains the only market that allows pricing flexibility;2 all other countries use one or more laws to restrict pharmaceutical pricing directly or indirectly. Although pricing has been a contentious political issue in the US for decades, it appears to be especially problematic due to the financial burden experienced by many cancer patients.

Cancer patients in the US clearly have financial difficulties in undergoing cancer treatment. The difficulties, though, are not exclusively due to the out-of-pocket, uncapped costs of oncology products. In fact, most of the financial burden that cancer patients experience are attributable to inpatient care and physicians’ services. In reality, the amount that a cancer patient will spend out-of-pocket is determined by the specific tumor diagnosis and tumor stage, the manufacturer’s patient assistance program, and the type of drug coverage the patient has. Regardless, US consumers, even with “good” insurance, experience significant barriers due to excessive cost-sharing, and two-thirds of personal bankruptcies in the US are due to medical bills.

Driving the prices of innovative medicines down to below levels which consumers are able to pay will in time cut private investment in biomedical R&D with little chance of public investment making up the shortfall since government treasuries are not in the business of making high risk investments. Focusing narrowly on R&D costs and other inputs often ignores the substantial costs of capital and does not say anything about the value that medicines provide to patients and healthcare systems. 

On the issue of cancer drug pricing IFPMA’s Thomas Cueni points out that that spending on cancer drugs is represents only about 1% of total healthcare costs.3 Says Cueni, “In our experience the most helpful way to assess the affordability of medicines to health systems is to take into account both the spending involved and the costs to society represented by disease. This means accepting that medicines can and do make a real contribution to reducing other healthcare costs as well as lost productivity.” According to Cueni, the solution lies in balancing the needs to incentivize research into future breakthrough therapies while ensuring that medicines are affordable to health systems, to patients and no one is left behind or suffers financial hardship due to out-of-pocket payments. The key is to find the right balance between access to medical progress; the proper incentives for future breakthrough innovation and the need for sustainable budgets. He adds that there is clearly a willingness among companies to adapt their models and make sure patients have access and that they continue to offer more affordable prices in lower income countries.4

It is true that the US subsides research and development for the rest of the word. Researchers at The Brookings Institution estimated that if ex-US prices rose by 20%, the US consumer would realize $10 Trillion in economic benefits over 50 years, and the rest of the world would benefit by $7.5 Trillion over the same time frame due to the increase in new prescription drugs.4 Conversely, if price levels in the US fell to those in the EU, a significant reduction in the number of new innovations follow.

In the US, while the threats to the industry’s ability to set prices on market factors are real, the likelihood of immediate reform is, for now, low. The real concern is what CMS and the FDA do in terms of regulatory reform via administrative rule-making or regulatory policy changes. For instance, CMS is already considered setting a maximum reimbursement amount based on an international comparison of drug prices. This type of proposal could have a chilling effect on innovation since the industry would not be able to use differential pricing across customer types based on their willingness and ability to pay. A single price would delay innovation for those who are willing and able to pay for early access and still be too high for those who would remain unable to pay. Both cash flow and operating margins would be negatively impacted, and research and development would become more risk-averse and decrease.

Policy recommendations

A more positive type of global reform would focus attention on developing and implementing alternative reimbursement models that base reimbursement on patient outcomes linked to value-based contracting and financing. Value-based contracting mechanisms that are supported by evidence-based clinical outcomes are a reimbursement model oncology companies and their trade associations could support. Increased funding for the drug regulatory agencies to improve drug review times and efficiencies and to incorporate new criteria for patient outcomes, statistical methods, and novel clinical research designs should also be a priority.

Additionally, intellectual property rights (patents) and regulatory protection must be protected and strengthened in ongoing trade negotiations between and among countries. In the absence of reforms to increase prices ex-US, patent life must approximate 20 years as agreed to by the World Trade Organization (WTO), and drug regulatory policies must ensure not only harmonization but also transparency and equity in their application.

Also, early diagnosis and treatment initiation corroborated with genetic testing, lifestyle modifications, and counseling can lower cancer treatment costs. This along with removing access barriers due to healthcare disparities and health literacy are necessary in any health reform initiatives.

Finally, global public and private third-party prescription programs’ coverage policies do not adequately incorporate the adoptions new innovations into medical practice. Scientific progress has outstripped the processes that reimbursement and regulatory authorities to review new innovations efficiently. To a great extent the investment component of drug therapy has been left behind when the price of drug consumption is overly emphasized.

Conclusion

Pricing of new oncology products will remain a contentious issue, and legislative proposals will continue to be brought forward to address affordability and access for patients. As the world’s largest pharmaceutical market, the US must maintain its environment that encourages innovation and allow the biopharmaceutical industry to continue its mission to improve and extend patients’ lives. This goal can be accomplished by meaningful reform involving rectifying market imperfections in public and private third-party prescription drug payment sectors. Research powers progress against cancer by increasing our understanding of the collection of diseases we call cancer and by allowing us to translate this knowledge into new and increasingly precise ways to prevent, detect, diagnose, treat, and cure some of these diseases.

Governments, patient advocacy groups, payers, health professionals and pharmaceutical companies must continue to partner to find solutions for access and affordability appropriate to each nation’s perspective. The goal should be to improve the quality of care, reduce overall expenditures, increase productivity in the workforce. Any review process regarding the costs and benefits of individual medicines should adopt a societal perspective and not focus on prescription drug prices without considering value.

Robert A. Freeman is Professor, Pharmacy Practice and Administration (Social & Administrative Sciences), The University of Maryland Eastern Shore School of Pharmacy & Health Professions.

References

1. Kantarjian, H., Streensma, D., et al. “High Cancer Prices in the United States:  Reasons and Proposed Solutions. Journal of Oncology Practice. https://ascopubs.org/doi/full/10.1200/jop.2013.001351

2. Robert Langreth. “Drug Prices” Quicktake: https://www.bloomberg.com/quicktake/drug-prices. Updated February 5, 2019

3. Andrew Jack. “Drug costs prompt fears of ‘financial toxicity’ in cancer care”. Financial Times, May 31, 2018. https://www.ft.com/content/b32139dc-4a40-11e8-8c77-ff51caedcde6

4. https://www.swissinfo.ch/eng/world-health-assembly_push-for-drug-pricing-transparency-strikes-a-nerve-with-industry/44969974