Cancer Drug Costs Soared in 2 Decades

Cancer drug prices have increased 10% each year since 1995, even after adjusting for inflation and incremental health benefits.

In 1995, 58 leading cancer drugs cost approximately $54,100 for each year of life they were expected to add. The same drugs cost approximately $207,00 for each additional year of life in 2013—an increase of about 120%, in aggregate, a new study from the Massachusetts Institute of Technology (MIT) revealed.

The rising drug prices may reflect more social tolerance for significant health care costs, despite criticism by physicians and other health care groups, the authors said.

“I think the value of good health has really increased enormously over the last few decades,” said study co-author Ernst Berndt, the Louis E. Seleye Professor in Applied Economics at MIT’s Sloan School of Management, in a press release. “We treasure our health and are willing to pay a fair bit for that.”

Although the study found a positive correlation between therapy efficacy and cost, prices tended to increase more than quality.

“We found that the greater the improvement of the drug over existing therapies, the higher the price,” Berndt said in a press release. “So, price was related to quality—but price increased more than did quality.”

In 2013, a group of 100 prominent oncologists claimed that pricing policies involved finding the cost of the most recent similar drug available, and pricing the new product within 10% to 20% of that drug’s cost. Although that assertion is consistent with reference price models of demand, it is often challenging to determine the extent to which a drug’s price relates to its development cost, Berndt said.

The federal 340B drug pricing program may also play a role in the cancer drug cost increases, as the discounts it requires for certain hospitals and clinics may prompt companies to raise therapy prices.

The researchers concluded that price increases relate to research and drug development costs, which also prompt manufacturers to discover new therapies.

“We believe the direction of causation runs from prices to research and development costs—as prices increase, manufacturers are willing to spend more to discover new drugs—rather than the other way around,” the authors concluded.