Who Would Have Believed it? Markets Can Reduce the ‘True’​ Price of Cancer Drugs

A lot of attention has focused on the high price of cancer drugs. As my colleagues and I have noted, the inability to raise prices — once we know a product’s value — creates perverse incentives. With cancer, the issue is compounded because oncologists historically have had incentives to prescribe higher-priced drugs, as the Medicare Payment Advisory Commission (MedPAC) has noted. Some researchers have called out cancer drugs of an example where markets don’t work.

When it comes to cancer, however, it is the price of health — not the price of drugs — that matters. (This is one of several myths about cancer care worth debunking, as Tomas Philipson and I did a few years ago.)

This is also why recent work by Alice Chen, Xiaohan Hu, Rena Conti, Anupam Jena and myself is so important. Chen et al show, in Value in Health, that the ‘true’ price of newly approved drugs — that is, the price per median life year gained — has been declining since 2013.

We also know, from other Schaeffer Center work by Darius Lakdawalla, John Romley, and others, that patients value the mean response more, not the medians reported in clinical trials. Interestingly, Chen et al show that the price per mean life year gained hasn’t changed much over time, and is well below the threshold for cost-effectiveness given society’s willingness to pay to treat cancer.

If you don’t want to read Professor Chen’s paper (although I do recommend it), at least spend some time with Figure 3. As we think about ways to wring value out of the health care system, we acknowledge that Centers for Medicaid and Medicare Services reforms and markets seem to be working in therapeutic areas with rapid innovation.

This post was originally published on LinkedIn.