Soaring Cancer Drug Costs May Cripple Medicare

By Catherine Arnst
A new report says laws crimp Medicare's ability to control costs on cancer, leading to a 267% increase in drug spending over seven years

Medicare spending on cancer drugs has skyrocketed in recent years, and Congress has severely limited the program's ability to do anything about it, says a report in the Feb. 7 issue of The New England Journal of Medicine.

Although it is not the case with other drugs, Medicare must reimburse doctors or patients for virtually all cancer drug uses, even those not yet approved by the Food & Drug Administration. And it is not permitted to favor the lowest-cost treatment. As a result, says author Dr. Peter Bach of Memorial Sloan-Kettering Cancer Center in New York, "the prices of cancer drugs appear to be rising faster than the health benefits associated with them."

Bach notes that Medicare spending on drugs administered in a doctor's office, the vast majority of which are cancer treatments, rose from $3 billion in 1997 to $11 billion in 2004, a 267% increase. Overall Medicare spending rose by only 47% over the same period. Spending on cancer drugs is likely to rise even faster in coming years since a November decision by the agency that greatly expands patient access to cancer drugs as required by law.

Cost Gains Aren't Necessarily Treatment Gains

Medicare now allows reimbursement for an extremely broad range of "off-label" cancer treatments (meaning the drugs are used in ways that have not yet been approved by the FDA). Off-label uses are incredibly common in cancer therapy because oncologists often try a broad range of drugs against a tumor until they find one that works.

But Bach argues that the high spending on cancer drugs has brought little advantage to patients. Several studies have shown, for example, that the magnitude of the cost increase for each new drug for colon cancer exceeded the magnitude of improvement in efficacy. "It's pretty clear with many of these new drugs, their cost effectiveness is lower than previous drugs," Bach told BusinessWeek. "For each extra day or year of life they give, we're paying more than we did for the last one."

Cancer drugs, long a backwater of the pharmaceutical market, have become incredibly lucrative over the past decade as a new generation of treatments arrived with fewer side effects and better outcomes—but only for some patients. The prices of these drugs, however, are much higher than for cancer treatments in the past because there are few if any competitors for any one drug. Fifteen years ago, Bristol-Myers' (BMY) Taxol was the only commonly used cancer drug that cost more than $2,500 per month. Today, Genentech's (DNA) Avastin, Eli Lilly's (LLY) Erbitux, and Novartis' (NVS) Gleevec, all widely used, can cost $10,000 per month and up.

Medicare Could Negotiate Cancer Drug Prices

Medicare is barred by law from negotiating with drug companies on prices, but it can hold the line when it concludes that several drugs are virtually interchangeable. In that case, the agency can reimburse for the least costly alternative, no matter which drug is used, or choose a weighted average of prices for that class of drug. When it comes to cancer drugs, however, Congress requires Medicare to pay for any drug used "for a medically accepted indication," or for which the treated condition is major or life-threatening.

Bach recommends that Congress rectify the situation by establishing a center for comparative effectiveness—a concept embraced by President Obama's Administration—that would determine when a cancer drug's use is reasonable and necessary, based on clinical research. However, Bach acknowledges that patients may not be keen on this solution, as an authority other than their oncologist would end up restricting their access to some treatments. "This is going to be tough going," he says. "But that is maybe one of the trade-offs we need to make to bring prices under control."