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Health economics: the cancer drugs cost conundrum

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by Cancer Research UK | Research Feature

10 August 2016

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Health Economics


The prices of cancer drugs have skyrocketed in recent years, increasing pressure on an already troubled NHS and sparking heated debate. But are these hefty price tags justified and can we actually afford them?

Cancer research has never been more exciting than it is today. From super-boosting the immune system to developing personalised approaches, research is changing the face of cancer treatment.

10% annual increase in the prices of cancer drugs between 1995 and 2013But this comes at a cost. The new immunotherapies, for instance, have price tags of more than £100,000 per patient per year. And these innovative drugs aren’t the only ones costing a small fortune; a global trend of soaring cancer drug prices has been going on for some time. A 2015 study by the US National Bureau of Economic Research says the prices of cancer drugs have increased 10% every year between 1995 and 2013.

There is real concern that cancer treatment is becoming unsustainable. And, in recent years, it has been in the media spotlight sparking debate on spiralling costs and overspending. In England, the NHS watchdog, the National Institute for Health and Care Excellence (NICE), has come under intense criticism from patient groups for turning down numerous cancer drugs for use on the NHS when they weren’t deemed cost effective.

Meanwhile, the Cancer Drugs Fund (CDF) – set up in 2011 to plug gaps in NHS funding for cancer drugs –overspent its allocated budget by 35% between 2013 and 2015; ballooning into a fund that, over its lifetime, cost £1.27 billion. The realisation that the CDF overspent so drastically led to a flurry of drugs being culled from the CDF to reduce its costs but now it is being completely overhauled with a new process and budget from July 2016, with NICE reviewing all cancer drugs and the CDF managing access to the promising but data-limited ones.

Other countries are also feeling the pinch. In the USA, for instance, pricing freedom means top-selling drugs are on average three times higher than in the UK, according to 2015 research by a team from the University of Liverpool. Although the healthcare system there is founded on the principle that medical care should be above the consideration of cost, many people have expressed outrage over the growth in cancer drug prices.

The truth is, healthcare systems around the globe, including the NHS, are struggling to afford cancer drugs. There are no signs this trend for hefty price tags will abate any time soon or that these prices can be easily reined in. There is concern around where these prices are heading and the implications on cancer treatment, and healthcare in general in light of financially constrained healthcare systems.

Pricing is out of hand

Cancer costs the world £895 billion

“Pricing is out of hand,” says Professor Richard Sullivan, director at King’s College London’s Institute of Cancer Policy. “The cost basis of what’s happening to medicines is very elastic – the prices just keep going up. It’s not about value but what the market can bear.” According to the American Institute of Cancer Research, cancer costs the world more money than any other disease – about $895 billion a year. Alongside drugs, that includes the costs of diagnosis, radiotherapy, imaging, pathology, surgery, and end-of-life care. Interestingly, says Richard Sullivan, medicines account for just 4-5% of total improvements in outcomes, with most control and cure through surgery and radiotherapy, yet medicines dominate public policy and media attention. “It’s incredible how medicines have got into the public psyche when it’s not the major modality of cancer care,” he says.

The problem with these expensive drugs is the knock-on effect in the NHS, both on its budget and the allocation of resources and impact on services, says Zoë Molyneux, formerly a senior policy advisor at Cancer Research UK (CRUK). “Overly expensive drugs may displace resources; not just drugs for other conditions but paying for these may reduce the NHS’ ability to invest in other cancer services like radiotherapy or diagnostic services.” It’s become something of a conundrum – access to cancer drugs is imperative but the price tags for these very same drugs are creating barriers to access. It’s pitting the pharmaceutical industry against the NHS and patients. But the CDF and NHS finances show you can’t have both access and high prices; something has to give.

The cost basis of what’s happening to medicines is very elastic – the prices just keep going up

—Richard Sullivan

The pharmaceutical industry argue that soaring prices are due to the expense of research and development (R&D). “Drug development is an expensive business,” says Professor Richard Barker, founding director of the Centre for the Advancement of Sustainable Medical Innovation (CASMI), and a former director general of the Association of the British Pharmaceutical Industry (ABPI). The pharmaceutical industry argue that soaring prices are due to the expense of research and development (R&D), estimated at £1.15 billion to bring a new drug to market [see image]. However there is much debate over this figure. The industry, says Richard Barker, cites high attrition rates as a key driver of cost, as well as the short timeframe that companies have to recoup their money before competition from cheap generic versions. Overall, cancer drugs tend to have higher costs compared with other disease areas “because of lower success rates [in trials] and smaller patient populations for targeted medicines”, he says. Critics, however, claim the figures quoted by the pharmaceutical industry and these reasons are flawed, noting that figures include profit estimates, don’t account for tax breaks, focus only on the most costly new drugs (those developed in house) and on new blockbuster drugs not ‘me-toos’, those which are structurally very similar to existing drugs.

Traditionally, cancer drugs have always been highly priced but the costs of newer molecular targeted drugs, such as some monoclonal antibodies and tyrosine kinase inhibitors, have “escalated dramatically”, says Professor Peter Clark, a practicing oncologist and chair of the CDF. In addition, duration of treatment has increased with the new drugs and, in some cases, treatment can continue for years, he says. “As a result, the cost of treating a patient has gone up.”

Then there is the looming issue of combination treatments, Peter Clark adds, where two expensive drugs are given together. For example, pertuzumab (Perjeta) plus chemotherapy plus trastuzumab (Herceptin) gives a 16-month survival advantage in breast cancer. “That’s a whopping benefit, but it will cost a fortune. How can the healthcare system cope?”

Price and value are not related

Already the NHS is creaking, and the long-term cost consequences of expensive cancer drugs could be vast. The main issue, says Richard Sullivan, is that the price of cancer drugs bears no relationship with the drug’s value (the price plus the total cost of care versus the benefit). “Just because a drug has marketing authorisation does not mean it is a good drug,” he says. He questions the justification of a premium priced cancer drug that doesn’t cure the disease but only provides a survival benefit of a few months, and only then in a select patient population. “There is a disconnect between research, the regulatory environment, and fairly priced drugs that provide clinically meaningful benefits.”

A stark example of this was seen in the USA in 2012 when aflibercept (Zaltrap™), a new drug for bowel cancer, entered the market. The standard cancer treatment, bevacizumab (Avastin), cost $5,000 a month, while Zaltrap, with similar scientific data, cost $11,000. In a move unheard of in the USA, Dr Leonard Saltz, chief of the gastrointestinal oncology service at Memorial Sloan Kettering Cancer Centre, in New York, decided the Centre would not use Zaltrap because of the cost. “Zaltrap was being marketed at more than twice the price of Avastin. It was therefore relatively easy to say we don’t need this drug because it doesn’t really make anything better for our patients and it costs substantially more,” he says.

Leonard defends his decision to reject access to Zaltrap, saying he was “perfectly comfortable” with the move in these circumstances where Zaltrap provided no incremental benefit. “As a doctor, I am always thinking about my patients’ best interest when I am making treatment decisions, but here was an opportunity to save an enormous amount of money without even the slightest compromise in care.” The greater challenge, he says, will be how we deal with drugs that have a much higher cost for a minimal incremental benefit. “Our society is just beginning to wrestle with that.”

Overly expensive drugs may displace resources; not just drugs for other conditions but paying for these may reduce the NHS’ ability to invest in other cancer services like radiotherapy or diagnostic services

—Zoë Molyneux

Since 2012, there has been increased focus in the USA on spiralling cancer drug prices, with oncologists calling for new regulations to keep prices in check. Even American patients are concerned – 72% believe drug costs are unreasonable and 74% think pharma cares more about profits than people, according to a Kaiser Health Tracking poll last year. Leonard says the mindset is too focused on “let’s develop the drug at any cost, knowing we can pass those costs onto the consumer, regardless of how much or how little actual benefit there is”. Nothing has stopped the costs from rising, he says, adding: “The simple fact is that so far, pharma is clearly getting away with these prices.” 

The pharmaceutical industry disagrees. In England, cancer drug costs are included in cost-benefit calculations and compared against NICE’s cost-effectiveness threshold (see box below). That’s a problem for industry, says Paul Catchpole, value and access director at the ABPI, when the threshold has largely stayed unchanged for 16 years and doesn’t reflect inflation or increases in healthcare expenditure over that time. However, he adds: “It would be wrong to say the industry doesn’t recognise that drug prices are high and represents a challenge in the context of healthcare systems that now face significant affordability and austerity issues.” Innovation in pricing and reimbursement models is needed, along with a greater focus on moving towards paying for health outcomes, he says.

How does NICE work?

NICE was established in 1999 to provide guidance to the NHS on whether new treatments and services are a cost-effective use of NHS budgets. It determines the cost-effectiveness of a drug or other technology by weighing the cost of the drug to the NHS against its clinical effectiveness. It uses a measurement called a quality-adjusted life year (QALY), where one QALY is equal to a year of healthy life. To be deemed cost effective, new drugs should represent value for money for the additional QALYs gained as a result of the treatment compared to existing treatments used in the NHS. A drug should normally cost no more than £20,000-£30,000 per QALY gained to be considered cost effective. End-of-life treatments, which may add between three and 24 months of extra life, are given more flexibility and should cost no more than £50,000 per QALY gained. Increasingly, cancer drugs have overreached these thresholds and have been rejected by NICE for use on the NHS.  

The ability to pay

It’s not just the high prices that are the problem but also the ability to pay them. In the UK, this has become an increasingly contentious topic as NHS budgets become squeezed. Pharma companies and the NHS already negotiate prices – allegedly for discounts in the region of 25-30% – but these final figures are hidden from the public. Even with alternative pricing arrangements some drugs struggle to get through NICE and instead are picked up by the CDF, which had, at one point, been funding more than 40 cancer drugs that had effectively been considered too expensive by NICE for routine use on the NHS. Forty drugs is not a lot when considering the number of cancer drugs overall, but the CDF experience shows the prices were busting the bank for questionable benefit, highlighting the extent of the pricing conundrum. In 2015, the National Audit Office described the CDF as unsustainable, even after it de-listed 34 cancer indications, and Richard Sullivan calls it an “unmitigated disaster”, with a lot of money poured in and no data on the outcomes.

It is crucial to move the discussion away from access and availability of cancer treatment to one on the real value and affordability of cancer medicines

—Richard Sullivan

£340 million fixed budget for the reformed cancer drugs fundAfter a 12-week consultation, the CDF is being overhauled to become a ‘managed access’ fund, integrated with NICE, with a fixed annual budget of £340 million. Under the new scheme, starting in July 2016, NICE will appraise all newly licensed cancer drugs, giving a yes, no or conditional approval for use on the NHS. Those with conditional approval will be considered for the CDF for further evaluation and with clear entry and exit criteria. It will allow faster access to newly licensed treatments, collect real-world outcomes data to identify which drugs are the most effective for possible future routine NHS use, and put pressure on pharma to price drugs appropriately. Simon Stevens, chief executive of NHS England, describes the new CDF as “sorting out the wheat from the chaff”.

85,000 people have accessed drugs through the cancer drugs fund

Although the original Fund allowed 85,000 patients access to cancer drugs they wouldn’t have previously had access to, the CDF experience shows there wasn’t a huge amount of cost containment, says Zoë. This is needed to ensure the healthcare system can continue to afford effective drugs and get value for money. She believes NICE is best placed to be that cost-containment mechanism but says it needs to be “somewhat more flexible”, though there is no consensus on what that might mean, she adds. NICE’s thresholds have been heavily debated for years, but Richard Sullivan warns against increasing them to allow more costly cancer drugs through, saying this would impact the fair distribution of public money.

However, Peter Clark believes the new CDF and the collection of outcomes will lead to more drugs approved by NICE, with up to 50 cancer indications expected to be reviewed in the next two years. “The consequences of all these approvals will cost money”, he says. Of course, he notes, drug costs could be reduced inline with benefits. Leonard Saltz is dubious though, saying “we cannot expect pharma to reduce prices out of charity”. Indeed, it would be difficult to lower headline prices in the UK, Paul Catchpole notes, because the UK is an early launch market and its list price is used to inform the pricing and reimbursement decisions in other countries. “However, other novel commercial solutions are absolutely available, but these need to be explored in more meaningful dialogue between all stakeholders.”

There is no easy solutionDrug development pipeline

A solution to the problem – both from a drug price point of view and the ability to reimburse cancer drugs – does seem relatively elusive. And while it is clear that a long-term sustainable funding mechanism is needed, what this should look like and how it would work has struggled to produce a consensus. Many have called for NICE to have a greater responsibility in negotiating prices with pharma companies but this evolution has been slow.

Paul believes it would be possible to build on other mechanisms that are often already employed in the confidential NHS negotiations, such as patient access schemes and new commercial access arrangements. Peter agrees, suggesting NHS negotiating teams should have more flexibility in the structure of confidential commercial access agreements. He believes pharma will be more accommodating with its prices if this is guaranteed. “If we can do that, we can protect the company’s list price and no one then knows the deal done. We need to get pharma to help us to help the patient.” However, not everyone agrees with such an opaque approach: “I cannot accept that we can get a better deal for the public by hiding it from them in the deep dark shadows”, says Leonard.

One area gaining widespread traction is the call for a move to a value-based pricing system, where price is directly linked to the value a drug provides. Such a system was due to be introduced in the UK but complexity in the negotiations has seen this, and its iteration, value-based assessment, shelved. But following the CDF experience and in light of the NHS’ financial situation, there is renewed vigour in discussions around the need for a value-based pricing model. Richard Sullivan says it is crucial to move the discussion away from access and availability of cancer treatment to one around the real value and affordability of cancer medicines.

Though a focus on value can be complicated, notes Richard Sullivan, because improved cancer outcomes require the cancer system to work together, from prevention and early diagnosis through to excellence in surgery. “Drugs only work well if all the other bits of the system work together.”

There is no easy solution to the problem and getting agreement across the board will be difficult. It can be argued that small steps are being made with the reformed CDF, where more emphasis on collecting data on the effectiveness of the cancer drugs will go some way towards more accurately defining value and what we are prepared to pay for it. Increasingly, it seems, as global healthcare systems buckle under financial pressures, there will be more insistence on outcomes and data collection in the future, particularly in a real-world capacity, rather than just under the confines of controlled clinical trials. This data collection is something Richard Sullivan believes is not necessarily difficult.

But if the system is left unchecked, Leonard fears drug prices will continue to rise, and he notes that we are already at a point where drugs are starting to cost hundreds of thousands of dollars per patient per year. Society, he says, has been reluctant to discuss drug prices and their value because it’s not an easy conversation. “But we have to tackle it – common sense says the current situation cannot continue.”


In this article

Richard Barker


Richard Barker

Founding Director, Centre for the Advancement of Sustainable Medical Innovation (CASMI)



Paul Catchpole


Paul Catchpole

Value and Access Director, Association of British Pharmaceutical Industry



Peter Clark


Peter Clark

Oncologist and Chair of the Cancer Drugs Fund



Zoe Molyneaux


Zoë Molyneux

formerly Senior Policy Advisor, CRUK



Leonard Saltz


Leonard Saltz

Chief of the Gastrointestinal Oncology Service, Memorial Sloan Kettering Cancer Centre, New York



Richard Sullivan


Richard Sullivan

Director, Institute of Cancer Policy, King’s College London




Discover more

CRUK Science Blog – Dances with Pharma: why are drugs so expensive?

CRUK Science Blog – Changing the Cancer Drugs Fund: a step towards fixing how the NHS provides the best medicines

NHS England: Cancer Drugs Fund


This story is part of Pioneering Research: our annual research publication for 2015/16.