Estimating the Price Index of Cancer Drugs: 2007 - 2012

Background: Health economic studies of disease specific medical price index have consistently showed that after accounting for health improvement associated new technologies, the “quality-adjusted” price indices tend to stay stable or even decrease over time, countering the trend exhibited in the price index based on the traditional approach employed by the Bureau of Labor Statistics. The spiral increase at the launch price of new cancer drugs in the last decade has sparked public outrage. Most of these newly approved chemotherapy drugs are targeted therapy agents and include drugs that are administered intravenously (IV) at an oncologist’s office or orally at the convenience of a patient’s home. Unlike the treatment of depression where oral medication presents a cheaper alternative to office-based psychotherapy, targeted oral anticancer medications (TOAMs) are not cheaper alternatives to targeted IV drugs. In fact, a recent study showed that the growth in the cost of TOAMs outpaced targeted IV, raising a concern that recent pricing strategies of oncology drugs could lead to a steep increase in the price index of cancer even after quality adjustment.

Methods: This study used SEER-Medicare data to estimate the price index of cancer care. We focused on the index for chemotherapy and restricted our analyses to cancers for which chemotherapy is the mainstay of cancer treatments. “Price” was quantified as Medicare payment as the information of out-of-pocket payment was only available for Part D claims. We classified chemotherapy drugs into three groups, TOAMs, targeted IV, and non-targeted, and calculated payment as total chemotherapy costs within the first 12 months of treatment; the 12-month duration is consistent with the initial care phase in NCI’s cost reporting. We compared three medical price index measures: medical care expenditure (MCI) index, quality-adjusted MCI index, and service price index (i.e., fixed-basket index). The MCI-based approaches allows the indexes to account for the effect of service shifts (e.g., from office-based infused chemotherapy to home-based TOAM) on costs. We conducted hedonic regression to obtain quality-adjusted MCI index.

Results and Discussion: Results from SEER-Medicare showed a sharp increase in the average monthly Medicare payment of TOAM, increasing from $3,730 in 2007 to $7,128 in 2012, whereas targeted IV increase from $3,781 to $4,272 in the same period. Preliminary analysis indicated that unadjusted MCI index for chemotherapy grew faster than quality-adjusted MCI index, which then grew faster than service price index. This pattern is more pronounced in cancers for which TOAMs are becoming the standard of care, such as renal cell cancer and chronic myelogenous leukemia. The pattern of chemotherapy price indexes reported in our study differ from that observed in other diseases because unlike other diseases in which a switch from office-based to home-based services offers an opportunity to move toward cheaper alternative, home-based services in the context of chemotherapy could incur higher cost than office-based services due to the faster increase of TOAM costs and also prolonged duration of treatment.