A group of academics have channeled their inner Bernie Sanders and written a wonderfully naïve op-ed about how to lower drug prices: Destroy the industry that made America the world leader in biotechnology.
It's simple. Let government control drug prices and then corporations will just do what they always do, but it will be a lot cheaper. It is so simplistic it could have been written by Paul Krugman in the New York Times. It is also in defiance of how science, creativity and medical advancement works, and would lead to a mass exodus of science jobs from America.
Writing about the piece in Mayo Clinic Proceedings, lead author Ayalew Tefferi, M.D., a hematologist at Mayo Clinic, says, "The average gross household income in the U.S. is about $52,000 per year. For an insured patient with cancer who needs a drug that costs $120,000 per year, the out-of-pocket expenses could be as much as $25,000 to $30,000 - more than half their average household income."
He and colleagues cite a 2015 study by D.H. Howard and colleagues in the Journal of Economic Perspectives, which found that cancer drug prices have risen by an average of $8,500 per year over the past 15 years. What has risen markedly in that time? Cancer survival rates.
They claim that by controlling the market, the free market will work better. If you are a California resident enjoying paying 50 percent higher utility rates compared to the rest of the country, you see how in the real world more government control does not make the free market more efficient. If you can do math, it is better to be skeptical.
Here's my take:
In fact, new cancer drugs not only save and extend lives; they reduce the cost of treating cancer. Cancer spending has increased in 1995 from $42 billion to about $130 billion today. (Most of that is on doctors and hospitals, the cost of which the authors ignore.) Between 1995 and 2012 the share of cancer spending devoted to drugs increased from 3.7 percent to 9.3 percent while hospital spending declined from 62.4 percent of cancer costs to 41. 3 percent in 2012. Meanwhile, cancer death rates declined by 30 percent and the number of people surviving cancer increased by 40 percent (9.8 million to 14 million). Cancer costs as a share of total health spending declined from 4.7 percent to 4.4 percent. Meanwhile new cancer drugs have remained at around 0.7 percent of total health care spending.
Further, the authors imply that out of pocket costs for cancer drugs are increasing because health insurers are being forced to because of higher prices. This is inaccurate. Studies conducted by health actuary Milliman, Inc., found that capping cost sharing at $100 a month would only increase premiums by an average of $2 a month.
The authors claim that most new medicines don’t improve average survival of the average cancer patient. But new drugs target much smaller groups of patients for whom other medicines do not work. Averages don’t capture the benefit such small groups receive. Cumulatively, these new medicines are in fact, saving money and saving lives.
Meanwhile, the European style price controls the doctors prescribe are associated with faster increases in cancer costs and higher death rates compare to America. While they allude to the fact that price controls on generic cancer drugs have caused persistent shortages, they somehow believe that the development of new medicines which require substantially more money and entail significantly greater risk, would be immune to this outcome. They also apply to cancer doctors who are also paid much more in Europe than here. If the oncologists who wrote the letter believe price controls are the right prescription, perhaps they should lead by example.