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The Cost of Life

It’s time to consider price when evaluating new drugs.

Last year, the U.S. Food and Drug Administration approved Provenge, a treatment made by the biotechnology company Dendreon, for men with advanced prostate cancer. Clinical trials showed that Provenge extended life by an average of four months. Then came the price tag: $93,000 for a course of treatment.

In March, Medicare, the U.S. federal program to provide health coverage to the elderly, announced that it would cover Provenge. Yet the announcement came only after a national review, a process normally reserved for complex or controversial coverage decisions. Patient advocates worried that the cost had made Medicare hesitate to pay. Weighing the price of a drug in a coverage decision would have broken a long-standing precedent for Medicare, and there’s no evidence that it actually happened. But perhaps it should.

Provenge is just one of several dizzyingly expensive medicines, especially for cancer, that have been introduced over the last few years. Gleevec, for chronic myeloid leukemia, can cost more than $4,500 per month. Revlimid, for multiple myeloma, costs $10,000 per month, and Avastin, for colon cancer, as much as $100,000 per year. Neither typical patients nor government programs nor the employers that subsidize many workers’ health care can afford such costs. In 2009, health care accounted for over 17 percent of U.S. GDP, with roughly 10 percent of those dollars going to prescription medications. Trade-offs, ultimately, are inevitable.

Unlike other countries, including the United Kingdom and New Zealand, the United States has no history of taking price into account when considering approval or coverage of new treatments. The FDA’s mandate is to evaluate drugs for safety and effectiveness, not cost-effectiveness. Both Medicare and most private insurers face enormous pressure not to limit access to gold-standard treatments because of cost, though pricier drugs often come with more coverage restrictions (if Medicare limited coverage of treatments because of their cost, that would open the door for private insurers to do so as well). And most of us cringe at the thought of assigning dollar values to life. Nevertheless, we implicitly do so in many contexts—for instance, when we decide how much to spend on safety or environmental protection. “I have yet to meet the person who would say, hang the expense—there is no limit to what we should spend to save an additional life,” says Dan Wikler, a professor of ethics and population health at Harvard.

Things Reviewed

  • Provenge


But that’s when people are asked a general policy question; we think differently, of course, when it comes to ourselves or our loved ones, and that’s one reason it’s so difficult to control costs. There is no easy way to determine what prolonging someone’s life is worth. When Peter Neumann, director of the Center for the Evaluation of Value and Risk in Health at Tufts Medical Center, asked oncologists what they consider “a reasonable definition of ‘good value for money,’ ” almost 50 percent said between $50,000 and $100,000 per additional year of life. But another study, also by Neumann, tried to get at how they would behave if they considered drug costs in a real situation (something doctors ordinarily don’t do). Oncologists were asked how much additional time a hypothetical lung cancer drug would need to provide in order for them to prescribe it, assuming it cost $70,000 more per year than the usual treatment. On the basis of their responses, Neumann estimated that the doctors implicitly valued the year at closer to $300,000.

The United Kingdom already limits its spending for life-saving drugs on the basis of analyses by the National Institute for Health and Clinical Excellence, or NICE. The agency weighs the health benefits of a new treatment against the cost and advises the government on which treatments to pay for. It generally supports approval for drugs that offer an additional year of good-quality life for less than $30,000 to $50,000.

The goal is to offer the population as a whole the best health care the country can afford. Money not spent on expensive drugs with little impact is money that can be spent on more broadly beneficial treatments. While the rationale is a good one, the institute’s decisions are often unpopular. After reviewing the benefits of the drug Herceptin for people with HER2-positive breast cancer, the group of patients most likely to respond, NICE approved it only for use in the more advanced stages of disease. And patient groups were devastated when it recommended against Avastin, which increases life by an average of roughly four months in colon cancer patients.

A relatively strict limit on cost per month of life is unlikely to work in the United States. But a reference value—some set idea of what we consider a fair price for additional time—would be useful, even if it were not treated as a cutoff. Such a guideline would give Medicare and insurers more leverage in negotiating drug costs that today can seem almost entirely detached from the drugs’ actual benefits. Pharmaceutical executives often attribute high prices to the cost of research and development, but this claim is difficult to assess because the price of a drug is not tied directly to the cost of developing it; companies use revenues from successful drugs to compensate for R&D wasted on ones that fail. And some executives admit that they simply charge what the market will bear. Demand is fairly insensitive to prices in this case, because patients desperately want access to drugs that they think could save their lives.

That means bargaining is a must. Other countries have started to negotiate with drug companies over the cost of medications, and several experts say these efforts have ultimately lowered at least some prices, though the numbers are hard to verify. While Medicare is legally bound to pay a drug’s average sale price plus 6 percent, a congressional act to lift that requirement would be well worth the inevitable battle. In fact, this idea has already occasioned endless political fights, but the freedom to bargain is essential for the health of our economy.

The new federal health-care law takes a step toward greater rationality by funding comparative clinical-effectiveness research, which looks at the relative merits of different treatments. However, it also restricts the use of the cost-effectiveness analyses that the government will need for leverage with drug companies. (If Medicare did negotiate discounts and deals, that would make it easier for private companies to do the same, although pharmacy benefit managers and others already negotiate to some degree.) Also under the new law, Medicare can experiment with offering doctors a fixed payment to treat patients with a particular disease like breast or colon cancer, basing that payment on what the agency views as a reasonable average cost. Better cost-­effectiveness information would lead to better decisions within those frameworks as well.

The real dilemma comes when a drug has clearly been shown to work but is extremely expensive. In those cases, we will need to make some hard decisions. But the one thing we can’t do is keep shelling out whatever drug companies decide to charge. Says Harvard’s Wikler: “Our failure to take cost into account alongside benefit in deciding which drugs and services will be publicly funded distorts our health-care budget, sends the wrong signal to pharmaceutical companies, and contributes to the unsustainable increases in the share of GDP devoted to health care in this country.” In other words, though rationing may not be appealing, neither is blind overspending. And in our current system, distorted spending is already taking resources away from treatments that could save more lives at a lower cost.

Amanda Schaffer is a science and medical columnist for Slate and a frequent contributor to the New York Times.

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