PRICING IN THE MARKET FOR ANTICANCER DRUGS
Method: We hand-collected data on all anticancer drugs approved by the US Food and Drug Administration from 1995 to 2013. We calculated the treatment episode price for each drug based on the dosing and duration of treatment for a typical patient and the Medicare payment rate. We obtained information on survival benefits from randomized controlled trials and, for drugs approved on the basis of single-arm trials, modeling studies. We calculated the price per year of life gained for each drug in 2013 dollars. Using least squares regression, we estimated the relationship between the price per year of life gained and approval year.
Result: The average drug price is $78,600, and the average survival benefit is 0.45 years. We find that benefit-adjusted prices increased by 5% a year, or about $7,800. Put another way, in 1995 patients and their insurers paid $101,000 for a year of life. By 2005, they had to pay $178,000 for the same benefit. The result is robust to the inclusion of various controls for drug attributes (e.g., side effects, oral or intravenous administration).
Conclusion: Our results are consistent with the conventional wisdom that new anticancer drugs are more expensive than older products. In the absence of a well-defined standard of value, oncologists may evaluate new products’ prices against a reference price. Because reference prices are malleable and influenced by the prices of existing products, manufacturers have some leeway to increase launch prices over time without reducing demand. Expansions in the 340B drug pricing program, which requires manufacturers to give discounts to eligible buyers, may also have contributed to price increases for non-eligible buyers.