Cancer medicines: Why we must strengthen the link between price and value (Guest blog)

A WHO Technical Report on pricing of cancer medicines has raised questions for its unorthodox view of value-based pricing. The report is critical of what it sees as industry over-investment in cancer medicines R&D and what is portrayed as excessive return on investment.

For economists and others involved in policy discussion on drug price regulation, this is more than surprising. Not only is this thinking out of step with the wider trend towards value-based healthcare, it takes a selective view of pricing and builds its case on an assumption that the successes enjoyed by the oncology sector were entirely foreseeable 30 years ago. Of course, that’s not how it works.

Let’s rewind a little to the 1990s when cancer death rates were at their peak. The need for new solutions to this devasting health (and economic) burden was plain. But producing medical breakthroughs is not like turning on a tap until the supply of life-saving drugs meets demand.

If in doubt, just look at Alzheimer’s disease. Despite the enormous and growing need for drugs that cure or halt the progression of dementia, and the billions of euro invested in R&D by private and public sources, Alzheimer’s has become a case study in crushing disappointment. Several promising solutions have failed in clinical trials; an investment that cannot be recovered. Of course, this too was not foreseeable.

Three decades ago, oncology was facing a similar prospect. The chances of successfully bringing a cancer-beating molecule to market were about 1.29% among the lowest across therapeutic categories. I distinctly remember the sense of crisis expressed in headlines, conference halls and meeting rooms. And yet, despite this, some investments were made because of the belief that if significant technical hurdles could be overcome that even regulated pricing and reimbursement systems would reward innovation.

The rest is history. In the decades that followed, innovative anticancer drugs began to make a substantial difference for patients, lengthening their life span, reducing the burden of disease, and maintaining and improving their quality of life. An estimated 73% of survival gains in cancer since the 1990s are attributable to new medicines.

The subtext of the report contains a suggestion that ‘excessive’ returns in the past should prompt policymakers to cap future returns by selectively regulating cancer drug prices. This is myopic advice as it would fundamentally destabilise the innovation ecosystem. It does not explore what might have happened if this had been done in the 1990s. Would we have had the same improvement in cancer survival rates recorded over the past decades?

Striking a balance

The report also offers skepticism of value-based healthcare, highlighting some of its current limitations. However, academics, payers, regulators and scientific/medical societies are building increasingly robust ways to measure the value of medicines to health systems.

Health Technology Assessment (HTA) may be imperfect but it remains our best shot at linking price and value. While there remain uncertainties and difficulties in HTA processes for assessing the value of medicines, the WHO technical report did not explore the opportunity for innovative payment models and contracting arrangements.

Clearly, there is a need to strike the right balance between what health economists refer to as static price efficiency (tied to the regulation of pharmaceutical prices for patented medicines) and dynamic price efficiency (tied to incentives for pharmaceutical R&D across long periods)(1).

Ultimately, strongly differentiated prices that are closely tied to the value of a cancer medicine to patients, health care systems, and to society are required to achieve price efficiency in regulated markets. Unfortunately, this value-based approach is jettisoned in favour of the more nebulous concept of ‘fair pricing’.

For this reason, the report misses an important opportunity to recognise more innovative pricing approaches that provide both incentives for cancer medicines that offer marginal benefits and strong incentives for breakthrough and transformative cancer therapies.

Looking ahead, it is essential that we maintain – and strengthen – the link between the price of innovative cancer medicines and their value. Fortunately, the incentives in place a decade ago helped to overcome what had been enormous technical challenges regarding R&D in oncology. We strongly support those pricing approaches that will protect access to future innovation.

Contact the author of this article for a more in-depth discussion on this issue.
For more on this topic, we recommend this Office of Health Economics report.