The Real Cost of Expensive Cancer Drugs

In the news this week was the release of a congressional probe into high drug prices, particularly for cancer medications. One of the prime exhibits in the hearings was the drug Revlimid, produced by Celgene. In one sequence, Representative Katie Porter (D-CA) held up a whiteboard showing the increase in the cost of one Revlimid pill from $215 in 2005 to $763 today. Accusations of price gouging and profiting from illness quickly followed. However, the story behind Revlimid and other drugs is a lot more complicated than “evil villain drug companies bankrupt suffering patients.”

 

I should know. I was on Revlimid for several months in early 2019, and I have dealt with other, similar drugs in my multiple myeloma treatment.

 

Revlimid is a derivative of thalidomide, the infamous anti-nausea drug that led to so many birth defects in the 1960s. In the early 2000s, Revlimid was found to be an effective treatment for multiple myeloma, and it, along with its cousin Pomalyst, is still taken by patients today. (Because of its history, male patients still have to take a monthly survey making sure we haven’t donated blood or sperm and that we are not having sex with a woman who can become pregnant). For some myeloma patients, Revlimid is part of their first-line treatment. Others, like me, who were candidates for a stem-cell transplant using our own stem cells, get a different combination early on, but use Revlimid as maintenance therapy following the transplant. 

I was on Revlimid after my first set of post-transplant maintenance drugs stopped working. Unfortunately, the side effects of Revlimid were particularly bad for me and I had to stop using it after a couple of months. My experience with Revlimid and other high-priced anti-cancer drugs is relevant to the current policy debate.

 

The two most important things to remember about the prices of drugs like Revlimid are: 1) prices are much higher than they would otherwise be thanks to a variety of poor public policies, from intellectual property protections to our insane system of health insurance; and 2) very few patients pay the sticker price that Rep. Porter was discussing. 

The list of policies that keep prices high is a long one, but it certainly starts with a third-party payer system in which demanders are not price conscious and suppliers have no incentive to be transparent about their real costs. When you throw on top of that the large role for Medicare as a third-party payer who does not have to turn a profit, it’s no surprise that prices for drugs and procedures are high. In the case of drugs, intellectual property laws that create patent protection and needlessly extend the time needed to produce cheaper generics are part of the problem, as is the prohibition on drug importation. The various reimbursement systems, both private and public, pay higher fees to medical professionals who use more expensive treatments. And the FDA’s overly cautious regulatory regime adds a great deal of cost to drug research and development. Enabling drugs to get to market more quickly would reduce those costs. In general, this is a market lacking in meaningful competition and prices thanks to poor public policies.

The sticker prices of most drugs and medical procedures often mean very little as providers and insurance companies end up negotiating final prices that are below what appears on the first round bill. Beyond that, most patients pay neither the sticker price nor the negotiated price, including for drugs like Revlimid. One general point to keep in mind is that most cancer patients with insurance reach their deductibles and out of pocket maximums very quickly. If their plan has a health savings account, they are paying for those with pre-tax dollars and saving 30 or 40 percent right there. 

Because Revlimid is an oral cancer treatment and not a chemotherapy infusion, it’s covered by the drug plan of those with insurance. Myeloma patients will tend to hit their drug maximums quickly too, which means that they face no co-pays for the drug for much of the year. Even so, the costs can be significant. One way that insurance companies are dealing with this is by creating medically integrated pharmacies. I get both of my current cancer drugs this way (one of which is the previously mentioned Pomalyst). It’s a pharmacy run by my insurance company, which enables them to negotiate directly with the manufacturer and creates incentives for the insurance company to keep the cost to the patient as low as possible. It also means that the insurer can combine the insurance, drug provision, and medical care. I cannot get my monthly Pomalyst without speaking to both an insurance representative and a pharmacist, both of whom have access to my complete medical record. This is one strategy that reduces the final cost to the patient and provides better care. And I get the drugs delivered either directly to the house or to my usual CVS location. 

But the more important thing to know is that the drug manufacturers themselves offer substantial discounts directly to patients. With both Revlimid and my later use of Darzalex (an immunotherapy infusion), the manufacturers had “means-tested” discount programs that I was encouraged to apply for. Given our household income, which is well into the top 5%, I was skeptical that I would qualify, but I did in both cases. The discount program for Revlimid wiped out all but $25 of what would have been a co-pay of over $4900 on my first month’s supply of the drug. The manufacturer of Darzalex gave me a similar deal. If I qualified for this price cut, there aren’t going to be many people who don’t. It’s hard for me to accept arguments that the companies who developed drugs that have saved my life and who then make them available to me at a mere fraction of their sticker price are greedy SOBs who care little about cancer patients.

My experience is backed up by medical data. A 2016 study reported that patients using specialty drugs like Revlimid experienced a median copay of $35. An earlier study in the Journal of Medical Economics concluded, after examining over 80,000 cancer drugs that when financial assistance was accounted for, the median copay was $80, and 91% of patients paid less than $100. In the same way that people who are horrified by the rising cost of college often forget that most students don’t pay the sticker price thanks to financial aid, those horrified by the largely meaningless sticker prices of cancer drugs need to understand that that overwhelming majority of people are not paying those prices.

Finally, we need to engage in double-entry bookkeeping here. Even at the high prices some people do pay, these drugs have delivered incredible value. People like me have been given years of life they would not have had otherwise. The monthly Velcade shots I had in my first round of treatment were billed to insurance at over $9000 per injection, though the final cost was less. But if those shots kept me alive to be here writing this, that’s not irrelevant. More generally, if better drug treatments enable myeloma patients to avoid even more expensive in-patient hospital stays, they are saving money compared to a world without the drugs. If Revlimid keeps myeloma under control and prevents metastasis or makes broken bones less likely, it reduces hospitalization costs, and that must be accounted for in thinking through its full costs and benefits. 

 

As is always the case in economics, we have to ask what the value is that we’re getting for the price we pay. There have been amazing advances in the treatment of multiple myeloma, from early drugs like Revlimid and Velcade through to the just approved Blenrep, the first anti-BCMA therapy that promises a whole new set of drugs for patients who have become unresponsive to standard treatments. None of this is cheap, but the longer, better lives it gives patients and their loved ones is of significant value. 

When you combine the reality of what most patients pay with the benefits that these drugs deliver, it’s hard to vilify the people who have risked their reputations and their capital in developing them. Demagoguery, unlike developing cancer drugs, is cheap. And attacking drug companies is no less profitable for vote-seeking politicians than selling drugs is for Celgene and the rest. But that doesn’t mean that the story politicians are telling is an accurate one. There are plenty of problems with the way we pay for medical care in the US, many of which could be fixed by better public policy. Unfairly demonizing drug companies for what is largely a problem of poor policies and institutional incentives is not the way to get the constructive change we need.