Cancer Doctors Join Insurers in U.S. Drug-Cost Revolt

Photographer: David Paul Morris/Bloomberg

An automated machine works on purification of a potential hepatitis C virus drug candidate at the Gilead Sciences Inc. lab in Foster City, California. Close

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Photographer: David Paul Morris/Bloomberg

An automated machine works on purification of a potential hepatitis C virus drug candidate at the Gilead Sciences Inc. lab in Foster City, California.

The backlash over surging drug prices is starting to take hold.

With the average cost of branded cancer drugs doubling over the past decade to about $10,000 per month in the U.S., doctors, insurers and politicians are all moving in different ways to pressure drugmakers on pricing.

Cancer doctors are in the process of creating a way to measure the value of the drugs they prescribe, the first step in a drive to give patients affordable options. Insurers are increasingly paying only a percentage of the cost of high-priced drugs, forcing drugmakers to step into the breach for consumers who can’t afford their products. Politicians, meanwhile, have begun asking drugmakers to explain the cost of their products.

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“This is a moral imperative,” said Clifford Hudis, president of the American Society of Clinical Oncology, the nation’s largest group of cancer doctors. “I don’t think any of us want to look back and say we turned away and didn’t lead while this was happening.”

Global spending on cancer drugs alone rose 28 percent to $91 billion in 2013 from $71 billion in 2008, according to a report by the IMS Institute for Healthcare Informatics, the group that also reported the monthly cost rise.

Those findings support a Bloomberg review of drug prices reported on May 1 that found dozens of medicines for ailments ranging from cancer to multiple sclerosis, diabetes and high cholesterol have doubled or more in price since late 2007. The Bloomberg review used data supplied by DRX, a Los Angeles-based company that provides drug comparison information.

Rising Ceiling

Increases among cancer drugs come about in two ways, through price boosts on older cancer pills, as well as a rising ceiling for medicines newly on the market.

“We are looking at a drug pricing bubble,” said Leonard Saltz, chief of the gastrointestinal oncology service at Memorial Sloan Kettering Cancer Center, who in 2012 led a rebellion at his hospital against an expensive cancer drug, refusing to put it on the formulary because of its price. “At what point do we say this is more than society can afford?”

The price of 73 drug brands increased 75 percent since 2007.  See the data.  Source: DRX; Graphic: Bloomberg Visual Data

The price of 73 drug brands increased 75 percent since 2007. See the data. Source: DRX; Graphic: Bloomberg Visual Data

An upcoming study of Bristol-Myers Squibb Co.’s Yervoy for skin cancer underscores how drug costs may spiral upwards as doctors explore how to use higher doses of an expensive drug in larger groups of patients.

The drug, approved for advanced melanoma in the U.S. in 2011, costs $120,000 for a standard four-dose regimen, according to Bristol-Myers.

Oncology Meeting

Academic researchers will report on a study of an experimental high-dose regimen of Yervoy in earlier-stage melanoma patients at the American Society of Clinical Oncology’s annual meeting.

The new regimen would use more than triple the current dose of Yervoy and, if approved, may cost far more for each patient if the drug’s base price remains the same.

As Generic Drug Imports Rise, Regulators Struggle

“We do not speculate about potential pricing of our investigational compounds or doses,” Melanie Brunner, a Bristol-Myers spokeswoman, said in an e-mail. “It is premature for us to discuss possible plans for a regulatory filing” for approval of the potential new use, she said.

At the cancer meeting, which starts May 30 in Chicago. doctors discussing clinical results for certain studies have been instructed to also examine the value of the treatments, said Hudis, who is also chief of the breast cancer medicine service at Memorial Sloan Kettering Cancer Center, in an interview at Bloomberg News in New York.

Different Perspectives

In addition, education sessions focusing on value will look at the cost issue from the perspective of patients, insurers, the drug industry and other countries with more cost constraints, Hudis said.

The effort -- which will go beyond drugs to look at other expensive treatments -- is the first time the clinical oncology organization has looked so carefully at value across the spectrum of cancer treatments, Hudis said.

The current system of pricing drugs “is not particularly rational,” Hudis said. “It is not the absolute cost of any individual drug, it is the lack of a direct linear association between their price and their benefits.”

What his organization wants to do “is to bring all parties in a room and start to understand what we need to do to have a more rational system,” he said. Some drugs may be worth more while others may be worth far less, Hudis said.

The revenue from higher prices has helped pharmaceutical companies hit by steep declines as patents ended on blockbusters.

Patient Benefits

Patients have also benefited from important new treatments for diseases such as multiple sclerosis, cystic fibrosis and rare forms of cancer -- including unusual diseases that at one time were neglected because the patient populations were viewed as too small for a drug to be profitable.

Health insurers, though, have made one small change that threatens to weaken the industry’s pricing power.

Many health plans sold through exchanges established under the Patient Protection and Affordable Care Act are requiring patients to pay a percentage of the total cost of high-priced drugs, rather than a fixed co-payment. The change means the higher the price of the drug, the more patients may have to pay -- until they reach their out-of-pocket limit.

The plans “really have the highest out-of-pocket co-pays that we have seen to date,” said Dan Mendelson, founder and chief executive of Avalere Health LLC, a Washington-based research and analysis firm. The law allows wide discretion in setting co-pays, and the higher co-pays let plans keep premiums low to attract customers, while limiting adverse selection among patients with chronic disease, he said.

Steep Discounts

As more employer-based health plans copy this feature, drugmakers may be forced to grant steep discounts to patients through assistance programs, or give bigger rebates to insurers to avoid drugs being placed on co-insurance tiers, said Richard Evans, a SSR Health analyst in Montclair, New Jersey.

“There is a major inflection point coming on pharmaceutical pricing,” he said.

Drug costs have come to a head over the introduction of a new treatment for the liver-destroying disease hepatitis C, which afflicts almost 3 million people in the U.S. Gilead Sciences Inc. introduced the drug, Sovaldi, at $84,000 for 12 weeks of treatment, or $1,000 per pill in the U.S. It usually cures the disease when used in combination with other drugs.

Eradicating the virus in everyone with hepatitis C could make Sovaldi one of the biggest selling drugs in history. In the U.S. alone, the approximate cost to cure everyone may be $400 billion for Sovaldi and various companion drugs, assuming some patients need to be retreated, according to estimates from hepatitis C researcher Andrea Branch at the Icahn School of Medicine at Mount Sinai in New York.

That has insurers worried about how they will pay for it.

‘Bankrupt Payers’

The price “will bankrupt a lot of commercial payers” if everyone uses it, said Sharon Frazee, vice president for research and analysis at Express Scripts Holding Co., a St. Louis-based pharmacy benefit manager that handles more than 1 billion prescriptions a year. “We really feel it is an unreasonable cost.”

On March 20, U.S. Representative Henry Waxman, a California Democrat, and two other Democratic representatives, demanded data from Gilead on how it priced Sovaldi. Gilead officials met March 31 with Waxman’s staff members, who have requested additional information on the approach to pricing Sovaldi, a spokeswoman for Waxman said in an e-mail.

$136 per Course

Gilead’s hepatitis drug could be produced in large quantities for no more than $136 per 12-week course, said Andrew Hill, a pharmacologist at Liverpool University, who published his estimate in the medical journal Clinical Infectious Diseases in January.

“The drugs are intrinsically extremely cheap to make,” he said.

Sovaldi “is priced such that the total regimen cost is equal to that of prior standard of care regimens,” Gregg Alton, an executive vice president at Gilead, said in an e-mail. The drug reduces total treatment costs for the disease and represents “a finite cure” that doesn’t have to be taken chronically, unlike many drugs, he said.

This year, Express Scripts excluded certain diabetes drugs from Novo Nordisk A/S from its main formulary for the first time, including the insulin drug NovoLog, citing the availability of alternatives. Novo Nordisk cited the move on May 1 as a factor in lowering its 2014 sales forecast.

“We felt the impact faster in a way than we would have anticipated,” said Lars Rebien Soerensen, Novo Nordisk’s chief executive officer, during a May 1 conference call with analysts.

Express Scripts has also threatened to stop covering Sovaldi, if similarly effective competitors come to the market with better prices, even if they are not as convenient to take.

To contact the reporter on this story: Robert Langreth in New York at rlangreth@bloomberg.net

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net Andrew Pollack

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