• Pills, Power, and Policy, Part 1

    This week I’m reading about the history of the U.S. pharmaceutical industry: Pills, Power and Policy: The Struggle for Drug Reform in Cold War America and Its Consequences, by Dominique Tobbell. It’s really fascinating, and I can’t believe I haven’t run into the book before given how closely it overlaps with various topics I’ve worked on (industry funding of academic science, regulatory and antitrust debates around healthcare, etc.).

    I’m about halfway through, but am trying to stay committed to my “write as much as read” strategy. So here are some takeaways so far:

    1. Drug pricing debates now echo drug pricing debates in the past

    Public outrage over the price of drugs goes way back—to the 1950s, at least. (Before that, people were just getting used to the idea that drugs, especially antibiotics, really had the power to save lives.) In this period, there were concerns that prices weren’t declining with competition, that drugs were unaffordable for lower- and middle-income families, that drug companies were colluding to keep prices high, and that there was too much spending on marketing and advertising (to physicians, not the public). All this led government to take up the issue—in debates over greater regulation of the industry, FTC investigations into price fixing, and a congressional subcommittee investigation into pricing.

    2. Antitrust is a theme to come back to

    Drug pricing was understood at least in part as an antitrust problem. Estes Kefauver, cosponsor of the Celler-Kefauver Act that limited mergers in the 1950s, was a key critics of prices and lack of competition in the pharmaceutical industry, and led a congressional investigation into it. The FTC also played an important role in drawing attention to the issue.

    In both of these cases, the investigation was tied to a pre-consumer-welfare conception of antitrust, that understood its purpose broadly and sought to use it to ensure markets were competitive in a variety of ways. The Kefauver hearings are covered more in the next chapter, but I was not anticipating this much overlap between 1950s drug pricing and my interests in antitrust.

    3. Pharma invented the “fund academics” strategy.

    According to Tobbell, drug companies basically invented the strategy of funding academics—not only to develop a research pipeline but to create political allies and promote the creation of knowledge that would align with their interests. During the 1950s, the industry not only funded postdocs and fellowships for foreign researchers, but supported the creation of clinical pharmacology programs.

    It didn’t stop with medical science, though. Concerned that government had “at its command many more facts about the industry,” one firm also funded a Harvard Business School researcher to conduct an “independent” study of pricing in the industry. In fact, drug companies apparently became so good at funding academics to advance their interests that in the 1960s, the tobacco industry explicitly copied their approach.

    4. Vannevar Bush is everywhere.

    There are a handful of people who pop up over and over in the postwar U.S. at the intersection of academia and policy. One is Carl Kaysen. Another is Vannevar Bush.

    Vannevar Bush — the guy got around.

    It’s commonly known that Bush framed much of postwar science policy with Science—The Endless Frontier. But what I did not know is that as a board member, he apparently also helped Merck take its modern form. He advocated that the company increase its internal R&D capacity, and create a central planning group to estimate markets, prices, and so on for drugs early in the development pipeline. The guy got around.

    In the next chapter we’ll get into Kefauver’s 1959 investigation into drug pricing. I am way too excited about this.

  • Drug Pricing circa 1990: Mapping the Literature

    This blog is an early-morning project for me—a time to think and learn about whatever I want, purely for the pleasure of doing so. That means reading as well as writing. But I also know that it’s easy for reading to overtake writing, so I’m trying to spend as much time on the latter as I do on the former.

    As I’ve already said, though, this is all very new to me. It doesn’t always feel like I’m ready to write. And it may mean that sometimes this is more like notetaking than well-assembled argument or reflection. So be it.

    The next task I’ve set for myself is to learn something about how drug companies were making pricing decisions circa 1990. I started by looking for pharma trade publications of the era, on the theory that the most useful orienting point would be news-type coverage, rather than scholarship.

    Identifying those has not been as quick as I expected, though. (If a reader out there knows what I should be looking at, please feel free to drop it in the comments.) So I’ve ended up in scholarship anyway.

    So far, what I’m seeing is circling around two main academic spaces. The smaller cluster is work in STS/history of science: Jeremy Green’s work on the history of pharmaceuticals, Dominique Tobbell on the drug industry in the Cold War decades, The Pharmaceutical Studies Reader. Of these, Tobbell’s book appears most focused on pricing, though it also seems to center on the 1950s and 60s. (I will look at it more closely.)

    The other, more sizable cluster centers in industrial organization economics. This was unexpected to me (having spent a fair bit of time reading in this area), though it makes complete sense. When I started searching for work on drug pricing actually published around 1990, the most promising pieces included a 1986 JEL by William Comanor on the political economy of the pharmaceutical industry, a 1993 JEP by F. M. Scherer on pricing in pharma, and a 1995 book by Alfonso Gambardella on science and innovation in the industry.

    Again, I haven’t really read these yet, but will review more closely. One thing that is worth a mention, though, given my interests outside of this exploration, is that two of the I/O folks cited above (Comanor and Scherer) also pop up in my book on the influence of economics on policy—in the context of antitrust policy.

    If I’m remembering correctly, Comanor served as the first Special Economic Assistant to the Assistant Attorney General for Antitrust in 1965, when Don Turner became the first economist appointed AAG. This was a moment when economics was just beginning to gain influence in antitrust policy. Scherer led the FTC’s Bureau of Economics in the mid-1970s, as well as writing the most popular I/O textbook of the era. I was not really expecting this to loop back so quickly.

    Beyond those two clusters of work, I’m also hitting a clump of publications on value-based pricing from around 2005 in outlets like Health Affairs, with authors coming from more of a business/strategy space than health economics. This is presumably when the idea was taking off, and Michael Porter’s Redefining Health Care: Creating Value-based Competition on Results is one landmark here. While I’m not sure this cluster of work will tell me much directly about the state of pricing circa 1990, it is obviously relevant to the broader story I’m trying to piece together here, and may be useful for finding citations to follow.

    I think my next step is reviewing the Tobbell book, and the JEL and JEP. Then we’ll see whether it makes sense to jump forward to the VBP literature circa 2005, to start reading trade publications or other news coverage from the 1990s, or to take some other direction entirely. Either way, it’s all fascinating so far.

  • Two Models of Pricing Drugs

    For those of you keeping track, I’m feeling mostly back to normal after losing several days to drug side effects. I only took one day of the new medication, which means I’ll have to revisit the dilemma of whether/how to continue some form of risk-reducing endocrine therapy. But for now I’m relieved to be back to writing about drug pricing for my own amusement, if annoyed and frustrated that I continue to lose big chunks of time to bodily management.

    Today’s post was motivated by the following paragraph [ungated], which set off all my “interesting problem!” bells when I read it a few weeks ago.

    Pharmaceutical pricing is not a context I know much about. I do not know how accurate this is as an empirical description (were prices in the past really not set with regard to willingness to pay? has there indeed been a well-defined shift in practice?). But if it is basically correct, it looks like a fruitful place to think about some of my themes of persistent interest, while writing through the process.

    I’m going to break this up into a couple of posts. First, I want to simply articulate—as a learner, not an expert—what these two models look like and why a shift from one to the other might matter. Second, I’d like to verify that pharmaceutical firms really did use cost-plus pricing in the past. Finally, I want to understand how these companies adopted value-based pricing, and how that fits into a larger movement in healthcare for value-based care.

    (I suspect that last one may be a bunch of pieces. But certainly definitions are first.)

    Cost-plus pricing, as described above, involves setting prices by adding a profit margin to the cost of production. This is common, as it is both relatively straightforward to come up with such costs, and seems reasonable to buyers as well.

    From an economic perspective, it doesn’t make a lot of sense; prices should be set based on what buyers are willing to pay—that is, on the value they perceive in the product. Indeed, the economist author of “The Dynamics of Cost-Plus Pricing,” a 1992 article cited in the above excerpt, goes so far as to call cost-plus pricing “normatively suspect!”

    As firms have become more economically sophisticated, and as the availability of data on consumer demand has increased, more industries have moved away from cost-plus pricing and toward value-based pricing. Airlines, for example, have become extremely good at setting prices based on what particular types of consumers are willing to pay for particular seats at particular moments in time, and companies like Amazon are able to change prices every second based on expectations about consumer behavior.

    Nevertheless, cost-plus pricing remains widespread. The Harvard Business Review compares it to romance novels: “widely ridiculed yet tremendously popular.” Its straightforward nature makes it attractive not only when demand is difficult to estimate, but when sellers want to convey that prices are fair, or to limit competition with other sellers using the same strategy.

    In many industries, we would not expect value-based prices to look wildly different from cost-plus prices. Perhaps one consumer is willing to pay 30% more for a shirt than another, and a value-based strategy can ensure that the second customer is offered a discount.

    But prices for life-saving drugs are relatively inelastic. People are willing to pay huge amounts for a chance to cheat death, and they expect insurance companies to cover the costs of such drugs. Thus the gap between what a cost-plus price and a value-based price is potentially huge. This makes value-based pricing an attractive strategy for pharmaceutical manufacturers, who like the idea of being able to charge six figures for drugs that do extend and/or significantly improve the quality of life.

    But at the same time, value-based pricing is widely embraced by those looking to reduce costs in the health care system. Here, the calculus is different. We know that many of the very expensive drugs prescribed for cancer, for example, don’t have a proportionate benefit—they may, on average, extend life by a couple of months. Yet if they show some benefit, they must be approved and covered, effectively regardless of price.

    From this perspective, differentiating pricing between drugs that provide a great deal of benefit—curing a fatal disease, or greatly extending/improving life—and those that provide only marginal improvement seems like an excellent move. We could agree to pay only for the amount of value that drugs do, in fact, provide, and refuse to pay for those that do not provide sufficient benefit. Here, for example, is an extended brief from the Center for American Progress making the case.

    Other countries do evaluate the value of drugs in this way and negotiate prices with insurers accordingly. And their costs are indeed lower—although U.S. prices are subsidizing what the rest of the world pays to some extent.

    What is interesting here is that both drug companies and their nominal opponents both favor value-based pricing. Advocates outside drug companies think it is possible to price more rationally and reduce costs overall, or at least increase consumer welfare by shifting spending toward drugs that provide the most value. Drug companies, presumably, think that that value-based pricing will allow price increases for genuinely health-improving drugs that will outweigh any price limits placed on drugs that provide limited clinical benefit.

    The question is, who is right? Would value-based pricing rein in spending and align it more closely with benefits provided? Or would it be a way to justify ever-higher prices for already existing drugs, without providing much compensating benefit? As someone who is constitutionally inclined to think that complex calculative systems are most likely to benefit the richest and/or most powerful actors in a space, my gut reaction is that it’s the latter. But I could be convinced otherwise, and that’s what I want to explore.

  • Back to the Body

    I was having a good stretch there for a while. Reengaged with work, writing on here about the political economy of drugs rather than the experience of cancer and its treatment. It was all good.

    But the “all good” was missing a critical piece. At the end of October, when my body was really falling apart and I was struggling mightily with brain fog, I stopped taking my aromatase inhibitor. This is the drug that suppresses all estrogen production, and reduces the risk of cancer recurrence by 50%.

    It has a panoply of side effects, including cognitive and mood problems. I made it through nearly four months but when things started to get bad, my NP suggested a break.

    It took weeks, but things very gradually improved. By mid-December things had taken a turn for the better, and this past week was the first week that I really felt fully engaged with work again, vs. just struggling to respond to what absolutely had to be done.

    But I knew I had to try again. On Thanksgiving I tried a dose of the old drug, which immediately brought back a deep fog that took several days to go away. Yesterday I tried a new drug, a different one in the same class.

    Well, the brain immediately went haywire. Within hours, I felt like I was behind a thick plate of glass. I found myself crying uncontrollably and deeply despondent for no external reason. I spent the day trying to distract myself from the wave of awful feeling that dominated my senses.

    So here I am on day two. I didn’t take the drug this morning. I thought if I were going to take it at all, I’d try this evening, on the theory that maybe I can sleep through some of the side effects. But I still feel shitty—depressed and zooey in the head.

    It’s really strange how our minds are, at base, such physical things.

    At some point I’m going to have to decide whether I push through this misery for a while in the hopes that it gets better—which it could. There are other things I can try. I can add various cocktails of stimulants and antidepressants to try to make the side effects manageable enough to continue. I can try another, slightly less effective drug with a slightly different side effect profile.

    But it really, really sucks. And obligations do not pause themselves just because your brain has fallen apart. Of course people would mostly understand if I asked for forbearance. But I don’t want forbearance, I want to have a functioning brain.

    I am ambivalent about posting this, because it feels so personal. But that is sort of the point—that just because “active treatment” is over, it doesn’t mean that you’re not still dealing with the aftermath. There are steps forward, and steps back. Writing it down in a rational tone helps, somehow, even if I question my own judgment in putting it out there.

    In the meanwhile, I’m going to try a run, in the hope that some endorphins can counter whatever horrible thing the lack of estrogen is doing to my brain. Fuck cancer.

  • Of Models and Morals: Value-Based Pricing as a Case

    I have always been interested in our broad frameworks for thinking about social/economic problems, how those frameworks shape the choices we see as reasonable, and how they remain stable or, eventually, change.

    As a graduate student, I found the history of the corporation compelling in this regard. This was the kind of story told by my dissertation adviser, Neil Fligstein, in The Transformation of Corporate Control. Over the course of a century, a succession of “conceptions of control” dominated the large corporation: new ideas about what its purpose was and how that should be achieved. This culminated with the financial conception of control, in which shareholder value was widely accepted to be the firm’s purpose, and people with finance backgrounds the most appropriate leadership—with downstream consequences for business and society.

    I have always been interested in our broad frameworks for thinking about social/economic problems, how those frameworks shape the choices we see as reasonable, and how they remain stable or, eventually, change.

    In my own work, I initially thought of this in terms of institutional logics: I wrote about the rise of a market logic in academic science, in which people came to understand scientific research as worthwhile because of its potential to produce technological innovation that, in turn, would drive economic growth. The argument of Creating the Market University was that policymakers adopted this framework and made policy decisions (about patent rights, about research funding) within it. This, in turn, promoted the expansion of practices within academic science that were grounded in such a logic (patenting and licensing, academic entrepreneurship, university-industry collaboration).

    Thinking Like an Economist is really written within this same broad framework. I’ve moved away from the language of institutional logics to talk about a “style of reasoning”—but at its base, it’s another book about how a new way of thinking (economic reasoning) took over a new space (policy domains), with downstream effects on what choices (policies) seemed reasonable—and thus with political consequences.

    The books and articles that most appeal to me are often looking at a similar class of problems: I am thinking, for example, of Gabi Abend’s The Moral Background, which explores the competition in the first half of the twentieth century between a “standards of practice” conception of business ethics, with a focus on “scientific worldview, moral relativism, and emphasis on individuals’ actions and decisions,” and a “Christian merchant” conception, with a “Christian worldview, moral objectivism, and conception of a person’s life as a unity.”

    Or Rakesh Khurana’s From Higher Aims to Hired Hands, which similarly explores how business schools came, in the 1950s, to replace a conception of business as a profession with a one centered on shareholder value—again, with intellectual, moral, and practical consequences.

    Or, more recently and at a finer grain, Barbara Kiviat’s work on the moral assumptions embedded in insurance pricing. A range of predictive variables—such as race, gender, zip code or credit score—can theoretically be used to set insurance prices; as a society, we have agreed—unevenly—that some of these are legitimate to use and others illegitimate.

    Kiviat talks about competing models of what constitutes morally appropriate insurance pricing—one grounded in actuarial fairness, or the idea that it is fair to consider factors that predict likelihood of using insurance; and another she characterizes as “solidaristic,” in which the point of insurance is to distribute costs across a population. These competing models have long been in tension, but this tension has been amplified with our growing capacity to individualize risk prediction.

    Changing Models for Pricing Drugs

    The crazy world of pharmaceutical pricing appears to be at least partially driven by a similar shift in how the relevant parties think about what prices “should” be—from “cost-plus pricing” to “value-based pricing.” At one level, we’d expect that in a market-driven economy, private producers would charge what the market would bear—but that people would only be willing, or able, to pay so much.

    Because it is mostly third parties who are doing the paying, however, the willingness and ability to pay goes much higher than it could for the typical individual—because the cost is spread over many people. At the same time, very high prices are still a problem—especially for uninsured people, but also societally, if we are spending lots of resources on drugs that don’t necessarily have much benefit.

    This unleashing of very high prices is dependent on drug companies deciding not to set prices based on the cost of production (including innovation) plus a profit margin. Instead, they are setting prices based on some measure of “value” that is grounded in the additional life/quality of life a drug provides to patients.

    Since we typically value our lives quite highly, and are willing to go to great lengths to extend them, this is an approach that is appealing to pharmaceutical companies because it can justify very high prices. In situations where competition is minimal, and deep-pocketed third-parties (government or insurance companies) are paying, this is good for the bottom line.

    At the same time, government regulators tend to like value-based pricing because it ties prices to the actual outcomes produced by drugs. At present, new cancer drugs (for example) are all priced at very high levels, even though many only briefly extend the life of very ill people, while a few may be truly transformative for people with some types of disease.

    The fact that both pharma and government, which have quite different interests, see this as a beneficial shift—even as there’s no sign that prices are actually being reined in—suggests to me that there is interesting stuff going on here. Value-based pricing is a lot like cost-benefit analysis (discussed at length in Thinking Like an Economist) in that it is a way to produce numbers that is systematic, consistent, and justifiable, but that is also reliant on a lot of assumptions and value choices that are not necessarily evident in the end product.

    As such, I assume value-based pricing is similarly shaped by the most powerful actors who have an interest in the numbers it actually produces. In the next few posts, I’m planning to explore it—to learn more about its mechanics, where it came from, and what it means for how drug prices are set in the context of the U.S. medical system—and to try to work out its implications for that system more generally.

  • The Personal and the Academic

    There’s a lot that I could write about my personal experience with cancer. And it’s likely that I will return to that at some point, especially if I feel physically worse.

    But one big reason for starting to write publicly was to try to find my way back to my research. During treatment, I finished a book that I’ve been working on for a very long time—but while I was relieved to complete it, I found that in my new reality I didn’t care very much, either about the book itself or, really, academic research in general. As my attention was consumed by my health, I found that I couldn’t really think about much else.

    At the same time, at some level I was the same person. As I tried to process the experience of cancer treatment, I found myself looking for books that could help me make sense of it, whether spiritually (Pema Chodron), personally (No Cure for Being Human), or practically (Dr. Susan Love’s Breast Book). As treatment receded but my health problems persisted, I also started reading the sociology of chronic illness. (I did buy Emperor of All Maladies, but couldn’t bring myself to read it while said malady was feeling a bit too immediate.)

    Certainly even in the midst of treatment it was clear that some of the things that intrigued, puzzled, or disturbed me were contiguous with my existing academic interests, but in new contexts.

    As I decided between two chemo regimens, one longer and harsher but that would statistically reduce the risk of recurrence by two percentage points, I wondered how people make sense of numbers as they make decisions about their health.

    As I noticed my oncologist’s dismissal of evidence based on observational, rather than experimental, data, I thought about how differently experts treat evidence depending on whether experiments are possible in their field of expertise—and what experts in such fields underweight by focusing only on the kinds of knowledge that experiments make possible.

    And as I blindly tried to navigate a complex medical organization, I wondered why we had produced a system in which expertise is exquisitely specialized and coordinated, yet so little attention is given to how patients experience it.

    In the month since I’ve started this writing practice, I’ve quickly generated a long list of topics that interest me. It is refreshing to remember that I can, in fact, still be intellectually engaged.

    But I am letting myself be pulled in the direction of the things I already study—because if I’m not writing as a form of therapy, then I’m writing to regain my academic identity. (Maybe those are the same thing.) In the short run, I think that means exploring topics that are closest to my existing research. Not necessarily economics-the-discipline, but more the reason economics drew me in the first place—because I’m interested in how the ways that we think about economic things shape institutions and how we govern them.

    In my first book, I wrote about how we came to understand academic science as having an economic role to play, and what that meant for policy (in terms of patenting, funding, and so on) and for the universities that housed scientific research. In the book that’s coming out in a couple of months, it’s about how a broad way of thinking associated with a particular discipline spread across policy spaces, reshaping the range of options that seem reasonable.

    The things I’ve been writing about in the last month are very much in this space. Our ideas about how companies generate new inventions intersect with a range of political interests to shape an intellectual property regime that allows companies to protect their inventions from competition for 40 or 50 years. Scientific research evolves from producing simple-molecule drugs to complex biologics, but our model of regulatory policy does not evolve accordingly, with the result that competition decreases and prices rise.

    And most recently, I’ve found myself thinking about different models for setting drug prices—and how a shift from cost-plus pricing, based on the cost of production plus a profit margin, to value-based pricing, in which prices are set based on the value they provide to patients, is really a transformative change. I suspect that the people making these decisions, whether they are drug companies seeking to maximize their profits or government agencies looking to control costs, are not fully attuned to the systemic implications of such broad shifts in models—but thinking about these things is very much in my wheelhouse. So that’s what I’m planning to explore next.

  • Maybe We’re Investing Too Much in Cancer

    As a cancer patient, I am really glad there are drugs out there to treat it. That includes chemotherapy drugs like Taxotere and Cytoxan, immunity-increasing drugs like Neulasta, anti-nausea drugs like Zofran, and endocrine therapies like Zoladex and Arimidex. As shitty as some of them are, these drugs have substantially upped my odds of long-term survival after breast cancer.

    Yet as I learn more about cancer drugs as a class, I find myself thinking that we’ve gone too far. That—as much as I’m sure I’ll be the first to gratefully agree to a six-figure course of treatment, should my cancer return—we are spending too much on them relative to other treatments and other diseases.

    In the last couple of weeks I’ve gone from being shocked by a $15,000 a dose price tag to seeing it as reasonable, relative to $150,000+ courses of treatment. The fact that prices have spiraled ever higher, even as most new drugs don’t greatly extend survival, is an indictment of a broken system.

    Some responsibility lies with drug companies—or at least the ever-present pressure for profits. Yet we can’t lay blame entirely at their feet. It is government that structures our healthcare system—however unintentionally—to incentivize these results. Legal scholar Robin Feldman calls our runaway spending on cancer drugs “regulatory failure by success.”

    Feldman’s point is that it is rules and regulations that have created a system that 1) allows for super-high prices and long periods without competition, 2) rewards pharma investments in the types of drugs that can charge such prices, and 3) does so without regard to how much benefit they provide for patients. This regulatory environment pulls the entire system toward a focus on cancer drugs, massively driving up costs while only modestly improving outcomes. And that focus necessarily means less focus on other types of treatment—say, antibiotics—with smaller profit margins but that might have greater human benefit.

    Feldman identifies four “positive” policies (active regulatory decisions) that have contributed to this “cancer curse,” and two “negative” ones (decisions against particular policies). Several of these we have already touched on, including the difficulty of getting biosimilar drugs approved relative to traditional generics, and the lack of price negotiation by government buyers.

    Others I have not yet mentioned. The Orphan Drug Act of 1983, for example, was meant to incentivize research on diseases affecting fewer than 200,000 people with tax credits and extended protection from competition. But over time, as we have come to treat not just “cancer” but increasingly specific subtypes of cancer, staying below the 200,000 threshold has become easier. At the same time, drugs developed and protected as orphan drugs are often repurposed for other treatments—with the result that 7 of the 10 bestselling drugs in 2015—including, notably, Neulasta!—started as specially incentivized “orphan drugs.”

    Feldman’s larger framing is that the current cancer drug situation is the product of regulatory success: decisions meant to encourage development have, in fact, made it so profitable that we are now overinvesting and paying way too much. But I think there’s a different lesson to be learned here is well.

    This is also about how medicine has developed in the face of a relatively stable regulatory environment: as drug development has shifted toward promising biologics, or genomics has made treatment more precise and treatment groups smaller, the existing framework works less and less well. The regulatory tools no longer fit the scientific landscape. The status quo will eventually stop working.

    What, then are our options?

    Some of these problems could in theory be fixed with regulatory changes; perhaps 200,000 people is no longer the right threshold for orphan drug benefits, or perhaps we need to limit additional incentives when orphan drugs are approved for other uses.

    Others might be helped by more cost-effectiveness analysis—that is, more evaluation that drugs are actually extending/improving life relative to existing alternatives and their prices, something other countries rely on but the U.S. does not. (Yes, I’m suggesting we think a bit more like economists.) This would open up new issues worthy of their own discussion, but relative to the status quo of $150,000 drugs that extend life for three not-very-good months, might be an improvement.

    But beyond thinking about investing in drugs that actually provide benefits in proportion to their costs, I can’t help but once again think about “care.” All this money, all this investment—yes, it sometimes cures and other times extends life. But drugs can cause misery as well—side effects often discounted by those who don’t experience them—and there is so much care we don’t provide to people because it isn’t as easily monetized.

    For example, an increasingly strong body of evidence shows that exercise substantially reduces the risk of breast cancer recurrence. A drug that produced similar benefits would certainly be covered by insurance, and routinely prescribed. Yet we don’t do much beyond maybe telling people they should exercise; there’s no formal support for encouraging or facilitating this “treatment.”

    And this is not even touching on the human side of care—of medical care that treats symptoms as well as diseases, that attends to people as humans and as individuals—which our system is set up so poorly to achieve.

    A note moving forward: I will probably not be posting until the new year, unless I am feeling really compelled. But I am looking forward to continuing this writing. I suspect I’ll have more to say on both the personal and the more analytical side. And eventually I’m hoping to walk my way from some of these themes to my existing research, with the goal of reminding myself why I was doing it in the first place. (Cost-effectiveness analysis seems like a good candidate.) It’s all been very therapeutic—thanks for coming along for the ride.

  • The Price of New Cancer Drugs Is Nuts

    If your reference point is, like mine was, Claritin and a cheap antidepressant, the cost of drugs like Neulasta and Zoladex is a bit of a shock.

    But what’s truly amazing is that in Cancerland these drugs—billed at $60,000 a treatment course and $26,000 a year, respectively—aren’t even notably expensive. Prices can go much, much higher. In 2018 the average price per treatment course for new cancer drugs was an astonishing $150,000.

    Believe it or not, there was a time when a $4,000 a year price tag drew criticism—when Taxol, a transformative breast cancer drug, entered the market in 1992. New barriers were quickly broken as prices rapidly climbed—to $20,000 a year for Herceptin (also breast cancer) in 1998, and $100,000 a year for Erbitux (colon cancer) in 2002.

    In fact, in the years leading up to 2000, the median monthly cost of a new cancer drug was under $2000. After that, prices began to skyrocket. By the early 2010s, median monthly price broke $10,000. And by 2017, a trade publication was noting with alarm that every new cancer therapy introduced that year was priced above $100,000.

    Surprised and astonished people receiving shocking unexpected news. Collage of scared and shocked men and women having surprised and astonished facial expression royalty free stock images
    We are astonished by the cost of new cancer drugs!

    These skyrocketing prices are not, typically, paired with astonishing cures or extensions of survival. While there have been some major advances around specific cancers, the price of new drugs is not associated with clinical benefit. Indeed, a study by Donald Light and Hagop Kantarjian found that only one of the 12 drugs approved in 2012 provided more than two months of survival gains.

    So why are these increases so off the charts, given the limited benefits? Again, as with everything in this space, there are many factors at play—not least of which are the horribleness of cancer, and people’s willingness to try pretty much anything to extend life. I’ve discussed some of these factors already. But I want to introduce one additional element that hasn’t yet come up: the economics of cancer centers.

    It’s clear why pharmaceutical companies would charge as much as possible for their drugs. And insurers are required to cover cancer treatment, and pressured not to drop particular drugs. PBMs—pharmaceutical benefit managers—play a role, too, for oral (as opposed to injectable) cancer drugs.

    But another important player is cancer centers themselves. As this very interesting chapter discusses, comprehensive cancer centers—the 51 nationally designated institutions that provide a disproportionate amount of cancer care and are responsible for much of our clinical research—receive a high markup on the drugs they provide, making those drugs’ prescription among the centers’ most profitable activities. At the same time, reimbursements for services like prevention, ongoing management, mental health, and end-of-life care do not cover costs, even as more people are living with cancer and its extended treatment, rather than simply being “cured” or dying quickly.

    What this means is that cancer centers are not neutral players when it comes to drug prices. It is obvious to the casual observer how physicians’ insulation from prices might be a factor in allowing costs to rise. And it is pretty well recognized that hospitals make money from expensive diagnostic tools and from surgeries. But I, at least, was surprised that drugs were such a profit center for cancer centers.

    This raises two themes that I want to think about more. One is how to think about governing systems in which price incentives are very distorted, and cross-subsidization serves important functions. The other obvious case, from my vantage point, is higher education. Most people don’t pay the full cost of tuition, tuition generally doesn’t cover the cost of college, and universities do lots of things that we value but that don’t pay for themselves and aren’t fully covered by government.

    The other is care. Last week I wrote about how frustrating it is, as a patient, to be caught in a system in which care is undervalued, and treatment is heavily drug-centered. Although I did not start writing about drug prices as a means to return to this theme, the conclusion is inevitable: as valuable as drugs are, our system is so tilted toward them that they have become a substitute for care—despite the fact that they are subsidizing its provision.

    There is one final topic I want to touch on before (maybe?) moving beyond pricing: the broader policy/regulatory environment that has made this broad set of developments possible—what legal scholar Robin Feldman has called “regulatory failure by success.” Next, we tackle that.

  • Zoladex, or How to Extend a Patent for 45 Years

    Yesterday I wrote about Neulasta, the chemo immune support drug billed at $15,000 a pop. But Neulasta is prescribed for a limited period. Today I want to dig into a drug that is taken for a much longer time: Zoladex.

    If you have hormone-receptor-positive breast cancer, which 80% of breast cancer patients do, part of long-term treatment involves shutting down estrogen production in the body. The best way to do this, currently, is to take an aromatase inhibitor (AI) for five to ten years.

    If you are premenopausal at the time of treatment, taking an AI is not enough. You also need ovarian suppression. There are three ways ovarian suppression can be achieved: removing the ovaries surgically, radiating the heck out of them, or taking a drug. The first two are very permanent, and since ovarian suppression can have a lot of side effects, are not an ideal first step. That leaves drugs.

    As far as I can tell, there are two main drugs used for this in the U.S., Lupron and Zoladex; I am on the latter. Now, chemotherapy threw me directly into menopause, as it does for most women my age (45 at the time). But this is not guaranteed to stick, hence the Zoladex. Once you start Zoladex, you don’t know if menopause would continue without it, so you have to keep taking it. The estimate was for five years.

    That brings us to the cost. Aromatase inhibitors are generic and pretty cheap. Apparently you can get one for $30 a month at Costco. (Though see this crazy story from 2013 about pricing.)

    But Zoladex is administered as an every-four-week injection that retails around $900 a pop. The hospital bills $2600: $2200 for the drug and $358 for a nurse to inject it. Insurance pays $966 for the drug and $88 for the injection. So someone is paying about $13,000 a year for me to take this drug. For five years. That’s $65,000.

    So why is Zoladex so expensive? It was patented in 1976, and first approved in 1989. Why does a drug nearly as old as me still cost so much?

    Researching this sent me down a bit of a rabbit hole. As with Neulasta, it’s complicated. And as usual, the overarching conditions of no government-sized entity negotiating prices in the U.S., and cancer drugs in particular being extra expensive, are really important. Other relevant issues are providers’ hesitance to switch from a known drug, and everyone’s insulation from prices in decisionmaking.

    There is also an issue with “patent thickets,” in which manufacturers patent as many things associated with the drug as possible in an effort to fend off competition, or at least slow it down in litigation. The 12 biggest selling drugs are protected by an average of 71 patents each, giving them an average of 38 years without generic competition.

    But there are some specific reasons that Zoladex and some of its peers have no meaningful competition after so many years. Take what follows with a bit of caution, because the patent stuff gets very complicated and I’m not sure I have all the details right. But the actual chemical compound of goserelin, the generic compound in Zoladex, went off patent in 2005. What still appears to be patented—until 2021?—is the special auto-injecting syringe.

    Apparently, this is a more general issue. Unlike a biosimilar drug, a generic version of Goserelin would not have to go through a complex regulatory process to demonstrate effectiveness. But injectables (most cancer drugs) and other sustained release drugs can have delivery mechanisms patented and are extra hard to copy. So manufacturers innovate on delivery systems, patent those, and hope it will throw up enough barriers to fend off competition for a longer period of time.

    And it’s working. While there is an alternative drug to Zoladex, Lupron, it has similar issues. It is twice as expensive as Zoladex, despite having been patented in 1973 and on the market since 1985. (It’s still under patent as well.)

    The result is that the inflation-adjusted price of Zoladex has increased 50% in the last 20 years, despite the fact that its active ingredient has been off-patent for fifteen.

    And while, to the uninitiated, $13,000 a year seems like a lot to pay for a maintenance drug, this isn’t even all that much in the world of Cancerland. More on that next.

  • The High Cost of Neulasta

    Each of the four times I received chemotherapy, the hospital billed my insurance more than $19,000. This covered several drugs, the process of infusion, and things like saline solution. (Hospital billed at $213, insurance paid $3.95.)

    Three-quarters of the price was from a single drug: Neulasta. Each round, the hospital charged $14,930 for “INJECTION, PEGFILGRASTIM 6MG.” The insurance company only paid $5,895. Even so, that’s a hell of a lot of money. So what’s the deal with Neulasta?

    Neulasta is not itself a chemotherapy drug. It is a bone marrow stimulant that tells your body to produce more white blood cells. This reduces the risk of neutropenia, the lack of neutrophils (white blood cells) that makes chemo recipients so susceptible to infection.

    Neulasta has some shitty side effects (bone pain), which I was lucky enough to avoid. But being less susceptible to infection is certainly a good thing, even more so in the age of COVID. So, yay Neulasta.

    Waiting for the bone pain to kick in

    But oh, the cost. Neulasta is the brand name of pegfilgrastim, a drug developed by Amgen and approved by the FDA in 2002. Its patent expired in 2015. You would think that would mean that competition would be driving the price down by now. And it is, a bit. But not quite like you’d think.

    Amgen made $2.3 billion off of Neulasta in 2020, making it the company’s third most lucrative drug. That’s down from peak sales of $4.7 billion in 2015. The trend is in the right direction—but it’s been six years. Why the lag?

    There are the usual reasons that drugs in the U.S. are more expensive than they are everywhere else, centered around the fact that government does not negotiate drug prices, and cost-effectiveness isn’t built into the system. A recent RAND study found that U.S. drug prices are 256% of those in 32 comparison countries. A 2018 study by the Department of Health and Human Services found that Neulasta in particular costs 3.6 times as much in the U.S. as it does internationally.

    Then there are reasons that cancer drugs, in particular, are expensive. Of course there are R&D costs, and the cost of clinical trials. But as far as I can tell, the basic answer is “because they can be.” If you’ve got a particular cancer, there aren’t a lot of competing options to choose from; no one is really negotiating prices, and people are willing to pay quite a lot (especially indirectly, via their insurance company or Medicare) when their life is at stake.

    But there is an additional reason that Neulasta, in particular, is so very expensive. Neulasta is a biologic, a complex drug produced by a living organism. Biologics have particular issues when it comes to cost. When a biologic goes off patent, you can’t create an exact duplicate of it, like you would for an ordinary drug. Instead, a “biosimilar” drug has to be developed—a comparable, but not identical, drug produced through a similar process.

    This creates several additional issues. First, copying a biologic is slower and harder than copying an ordinary drug. The regulatory process is more demanding, because you have to do a lot more to demonstrate that your biosimilar is, in fact, effectively the same as the original biologic. This extended period of testing—and the fact that the approval process for biosimilars is much newer, having been established only in 2010—opens up new avenues for existing manufacturers to file legal challenges and create other delays.

    Second, biosimilars are not generics. A pharmacy can substitute a generic unless a physician requests otherwise; this is not the case for biosimilars. And physicians are hesitant to switch to a biosimilar. Despite their extensive testing, as a category they are still relatively new, and there is not the same confidence in their substitutability.

    Third, the screwed up way we pay for drugs—with both insurers and PBMs (pharmaceutical benefit managers, like CVS Caremark or Express Scripts) as intermediaries—creates additional opportunities for biologic manufacturers to maintain their advantage. Both insurers and PBMs negotiate what they will cover, and prefer. Both rely heavily on “rebating”—negotiating manufacturer discounts in exchange for covering, or preferring, a drug—in order to reduce costs.

    A manufacturer like Amgen, most of whose profits come from a few very expensive drugs, has a strong incentive to rebate with a large insurer or PBM. So because Amgen gives rebates, United Healthcare has only approved Neulasta and will only cover biosimilars (which started to reach the market in 2019) after Neulasta has been tried—despite the fact that the list price of biosimilars is a third less. While this may be the better deal for United and its customers, it keeps the list price of Neulasta high, and stifles the nascent market for biosimilars.

    This is a really messed up system, and I suspect I could write about it at length. But for now I’ll just point out the consequences: an incredibly profitable drug that went off patent in 2015 had no market competitor till 2019, and as of early 2021 still could be billed at $15,000 a shot. Things are getting better; there are now four approved biosimilars to Neulasta, all of which cost a third less at launch, and the price of Neulasta has dropped by a third since the first biosimilar came on the market.

    But in the meanwhile, that’s another billion or so a year of pure profit for Amgen since 2015, without providing any additional value. And that’s just one drug. And that’s not even getting into how drug-centered our system is. We really could be doing better.