QALY cap represents one way to determine how to distribute health care resources, but many new cancer drugs cost two to three times this threshold of $100,000 per QALY.

Causes of Poor Cost-Effectiveness and Value Among Cancer Treatments

What are the causes of poor cost-effectiveness and value in cancer treatments? There are multiple causes, Dr. Brock said. First, the intellectual property protections and monopoly pricing afforded by 20 years of patent protection enables pharmaceutical manufacturers to set any price they want or believe they can get for a new drug. Second, though Medicare is the biggest purchaser of cancer drugs in this country, it is explicitly prohibited under part B from negotiating prices with drug companies. As a result of this prohibition, pharmaceutical manufacturers know that they will not be denied coverage by Medicare on grounds of cost. Most private insurance companies tend to follow Medicare’s coverage decisions, meaning that they do not apply any cost-effectiveness standard either. Therefore, manufacturers have no incentive to develop cost-effective drugs and no incentive to price drugs in a cost-effective manner. Third, most cancer patients have health insurance, meaning that they tend to be concerned only with their out-of-pocket costs. With out-of-pocket costs making up just a fraction of the total cost to the health care system of an insured patient’s care, there is little incentive for patients to reject care that is not cost-effective. Finally, some oncologists receive substantial income from using these new drugs for patients, and many physicians feel an obligation to do what is best for the patient no matter what the cost. All in all, said Dr. Brock, treatment decision makers (physicians and patients) have little incentive to weigh the true costs of care against the benefits, payors are largely precluded from negotiating for lower costs, and manufacturers have monopoly pricing to charge as much as they can get.

Regarding monopoly pricing, the usual justification has been that it is necessary so manufacturers will invest in research and development. This is a sound justification, said Dr. Brock. For some new cancer drugs, however, a different justification has been offered—that the prices reflect the value of the benefits of these drugs. In the setting of monopoly pricing, it is important that cost-per-QALY standards are caps rather than a price justified in this way. By analogy, suppose you were drowning and someone were on a



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