Drug Pricing and Value in Oncology

This paper examines the issue of prices, relative to value, for cancer drugs. The analysis focuses on the effects on manufacturer pricing incentives of insurance coverage, specifically, the effectiveness of patient cost sharing, incentives created by reimbursement rules for physician‐dispensed drugs, and payer ability and incentives to negotiate discounts. For pharmacy‐dispensed cancer drugs, both Medicare Part D prescription drug plans (PDPs) and private payers' pharmacy benefit managers are increasingly placing these drugs on specialty tiers that offer no leverage for negotiating discounts and imply often unaffordable cost sharing for patients who lack catastrophic coverage. Simulation analysis of financial risks faced by PDPs confirms their incentives to place costly drugs on specialty tiers if more preferred formulary placement would increase use, possibly because of adverse selection risk. Faced with largely price‐insensitive consumers and payers, manufacturers would rationally charge high prices. This situation is exacerbated for physician‐dispensed cancer drugs, where Medicare's average selling price plus 6% reimbursement rule favors high‐priced drugs. Because U.S. payers do not require evidence on prices relative to value, U.S. data are unavailable to test whether prices are higher, relative to value, for cancer drugs than for other drugs. Evidence from the Canadian Common Drug Review on cost‐utility values suggests that cancer drugs are relatively high priced, although conclusions are tentative because of very small samples and non‐U.S. data. Making such outcomes‐adjusted prices available in the U.S. would be helpful to physicians, payers, and patients and indirectly constrain pricing to align with value. This paper examines the reimbursement and cost‐sharing rules for cancer drugs used by public and private insurance in the U.S., to determine whether the current approaches provide reasonable constraints on manufacturer pricing and reasonable financial protection for patients.