How Should We Pay the Piper When He's Calling the Tune? On the Long-Term Affordability of Cancer Care in the United States
Authors: Scott D. Ramsey
Journal: Journal of Clinical Oncology (2007)

The affordability crisis has been a leading topic of the American health care debate for as many years back as anyone cares to look. In 2006, the federal government projected that our health care economy would exceed $2.1 trillion—roughly $7,000 for every man, woman, and child in the United States. Nevertheless, when it comes down to what we are going to do about our everburgeoning health care budget, Americans’ desire for real reform seems to wane when we come to the point of curtailing access to the newest, most expensive medical technologies. Nowhere is this more apparent than in cancer. I would argue that we treat cancer as special, even within the realm of major diseases that threaten our lives. When President Nixon launched his war on cancer in 1971, he separated the National Cancer Institute (NCI; Bethesda, MD) from the rest of the budget for the National Institutes of Health, to focus more attention and resources on cancer research. The budget of the NCI in 2005 was $4.87 billion, but even that doesn’t satisfy the American appetite for cancer research. There are 260 registered nonprofit organizations devoted to cancer; more than the number devoted to heart disease, stroke, AIDS, and Alzheimer’s disease combined. These cancer charities reported more than $2.2 billion in gross receipts in 2005. As many athletically inclined readers already know, we have far more opportunities to run and bike and walk for the cure when it benefits cancer. Neither is this empty rhetoric for the oncology community. In a recent survey, Nadler et al found that 78% of oncologists stated that patients should have access to effective care regardless of cost. Using a specific scenario, oncologists’ implied threshold for withholding care was $300,000 per quality-adjusted life-year gained, a figure three to six times higher than what most economists consider good value for expenditure. My point is not to criticize the research enterprise or even oncologists’ attitudes toward providing expensive care (they may not be different from other specialists), but rather to add a word of caution. We expend enormous resources to find new cancer treatments and we are getting them. Some are truly beneficial and others are only marginally helpful. Given a world of limited resources, if we treat all cancer treatments as equally necessary, this will create distortions in our health economy and beyond. Some of those distortions are likely to negatively impact the health of people more than they would be if we denied access to expensive cancer therapies with very small benefit. It is possible to directly connect our extraordinary demand for cancer treatments with prices now being charged for new therapies. In short, our “anything at all costs” attitude encourages manufacturers to introduce marginally beneficial products at very high prices. Economists have studied the question of whether demand for health care is influenced by the price of that care. Researchers find that demand for health care is quite inelastic to price; that is, increasing price produces little change in quantity of health care goods and services purchased. For example, a recent RAND study found that for health care in general, every dollar increase in price caused expenditures to fall by only 17 cents. There has not been a study of elasticity of demand for cancer care, but it is likely that cancer patients or health care payers are even less influenced by the prices than those with other health conditions. Monopolies are another concept important to explaining the trends in the costs of new cancer drugs. We grant drug makers patents that last 20 years for their new cancer drugs, creating artificial monopolies because other firms cannot manufacture or sell those drugs during the life of the patent. Patents allow pharmaceutical companies to charge health insurers more than it costs to produce their products and supply less than they would in a competitive market, thus allowing them to earn what economists refer to as monopoly rents. Indeed, several studies have shown that the pharmaceutical industry’s rate of return is 2% to 6% higher than the average of other industries over many years. The idea of course is that the promise of many years of monopoly profits will encourage firms to make the investment needed to create useful new products. Now let us combine the concepts of inelasticity of demand for cancer care and monopolies for cancer drugs. Because of their monopoly, drug makers will set the price for new cancer drugs well above their costs of producing those drugs. In general, our elasticity of demand for a good or service— our willingness to say “I’m not buying it” when the price gets too high—restrains firms from charging too much of a premium over their production costs. In an inelastic demand situation, however, modest increases in production costs have a magnifying impact on the price companies charge. If companies are bold enough to spend the money on research for a new cancer drug, and fortunate enough to have positive results that culminates in US Food and Drug Administration approval, even if the new drug is more expensive to produce than older drugs JOURNAL OF CLINICAL ONCOLOGY P O I N T C O U N T E R P O I N T VOLUME 25 NUMBER 2 JANUARY 1