Cancer Care at a Cost

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In the past several decades, we have witnessed advances in cancer screening, treatment and prevention, resulting in lower cancer mortality overall and higher survival rates of cancer patients. But these advances come at a cost.

Cancer care is known for expensive drugs and intensive technology use, factors that contribute to high health care spending in the United States. And large out-of-pocket expenditures for patients sometimes lead to debt and bankruptcies. According to a 2016 study published in Health Affairs, one third of cancer survivors accrued debt, with low income individuals more likely to be affected.

The challenges for our society are to determine which new technologies and drugs are worth paying for, as well as how to provide equal access to these treatments.

Contributors to High Costs

Many institutional and market characteristics contribute to high cancer costs.

Patent protection of new drugs and medical devices, while encouraging research and development, also limits competition and leads to high monopoly prices. Yet the law prohibits Medicare from price negotiations with pharmaceutical companies, and without bargaining on the buyer’s side, prices are higher.

Moreover, Medicare reimbursement policies give financial incentive to physicians to prescribe more expensive drugs instead of generic drugs. Shifting cancer care from community to more concentrated hospital settings also drives up prices.

A recent study published in the British Medical Journal shows yet another fascinating reason for high costs: Many drug manufacturers distribute one-size-fits-all vials that are too big for most treatments, so providers buy more than they need and throw away the leftover drug.

Do the Benefits Justify the Cost?

The United States spends more on cancer treatment overall than other countries. Are we getting enough value to justify the higher cancer cost?

According to a recent study published in Health Affairs, the United States indeed averted more cancer deaths than Europe between 1982 and 2010. Per quality adjusted life year (QALY) gained in the United States compared to Europe, however, the incremental cost to the United States was $402,000 for breast cancer, $110,000 for colorectal cancer, and an astonishing $1,979,000 for prostate cancer.

A single, gold-standard threshold separating cost effective treatments from those that are not does not exist. However, these incremental costs per QALY gained are above the generous $100,000 threshold that is based on value of life estimations and favored by many United States economists. They are shockingly high compared to the much more restrictive £20,000-£30,000 (about $28,600-$43,000) per QALY gained threshold range used by the government institution that informs coverage decisions in the UK.

The media frequently issue alarming reports about drugs and medical technologies that cost a fortune, yet only marginally, if at all, increase survival rates.

For example, a 2013 New York Times article describes how the colon cancer drug Avastin, which extends survival by approximately 42 days, costs $5,000 per month; and because it has to be taken for months to show benefit, its incremental cost per life year saved is about $300,000.

This value is high above any cost effectiveness threshold, yet a new drug, Zaltrap, targeting the same population and with similar effectiveness, was introduced at an even higher price of $11,000 per month.

In a different article on the market for anticancer drugs published in Journal of Economic Perspectives in 2015, the authors refer to the melanoma drug Yervoy, which was expected to prolong life by four months and was introduced at $120,000 for the course of therapy. Are these good uses of our resources?

Systematic Economic Evaluation

One of the first things students learn in econ 101 class is that economics is a study of how we allocate our scarce resources. Every time our society decides to spend money on one particular treatment, that money cannot be spent on another that may perhaps benefit more individuals.

Cost effectiveness analysis is the method that evaluates incremental cost per QALY gained, or life year gained, in order to compare the treatment options. It is not a perfect method. Its quality and usefulness depend on the accuracy of costs and benefits included, use of proper statistical methods and application to relevant patient populations.

Nevertheless, it is a tool that can assist decision makers to determine the best allocation of scarce resources, and to prevent wasteful spending. It has become an important component in coverage decisions in other developed countries. In the United States, however, federal law prohibits Medicare and other government programs from using cost effectiveness in decision making, leading to coverage of some very cost-ineffective treatments.

Fortunately, frameworks for drug and medical technology evaluations that incorporate aspects of cost effectiveness analysis have been promoted in the United States. One example is the evidence-based drug pricing project and the DrugAbacus online tool for computing the value of cancer drugs, developed by a team at Memorial Sloan Kettering Cancer Center.

At Davidson, students in our health economics classes tackle questions of how access to cancer care, health outcomes and costs of treatments are related to provider characteristics and reimbursement incentives, as well as patient resources, such as income, assets and insurance, education, demographic characteristics and modifiable behavior, such as smoking.

They are learning today what they will need tomorrow to make breakthroughs not only in cancer research, but also in design of a health care system that gives us the best value for our money, a system that can deliver and finance cutting edge cancer care and one day, hopefully, also cure cancer.

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About Author

Alicia Sparling

Alicia Sparling is assistant professor of economics at Davidson. She is a health economist and is interested in issues related to access to health services, health disparities, and health policy. The focus of her research is the relationship between economic determinants of access to health care and health outcomes.

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