The Economics of Cancer Care in the United States
The economics of cancer care
The previous texts have illustrated the highly complex nature of modern cancer care and the rapid rate of change in both medical technology and drug therapy. These changes are underpinned by extensive investment in new treatments by both drug and medical equipment manufacturers, as illustrated in the previous text. Clearly, new treatments must be paid for and in general, will cost more than the older technologies they replace. There are exceptions to this – for example, a treatment that improved the cure rate could reduce downstream expenditure on subsequent therapies and so may result in a net decrease in healthcare resource use. Measuring these interdependent changes is clearly complex, hence a lot of healthcare economic decision-making is focused on the direct acquisition costs of the new technology (which are easy to measure) rather than secondary downstream changes.
Frequently with cancer care, these costs are focused near the end of life and result in contentious funding dilemmas. How these dilemmas are dealt with by different healthcare systems forms part of this text.
Economics also impinges on cancer care at a more macro-economic level than the cost of an individual drug. In general, the developed economies of the world have comprehensive healthcare systems that broadly cover health issues from cradle to grave. Different systems have different pros and cons, but the major difference is between the developed and less developed world. Clearly, if basic infrastructure is lacking, whether or not to buy an expensive new drug is not a relevant discussion for most of the population. It is possible to estimate the size of these effects.
As can be seen, there are some countries with very low income and as would be expected, low life expectancy. However, there are others with pcGNP of less than $1,000 per year but where life expectancy exceeds 65 years. These countries include places like Egypt, Trinidad, and China. Common features of these countries are an integrated public health system and good perinatal care. Conversely, there are countries with pcGNP of more than $2,000 with a life expectancy of fewer than 60 years. The problem here appear to be high levels of HIV infection. Thus in broad terms, how rich a country is will affect, not surprisingly, the quality of healthcare and life expectancy, but also other factors play an important part. Some of these factors can be readily influenced by factors within the control of governments – overall organisation to get maximum impact from resources, public health campaigns, and so on. Conversely, at the upper end of the spectrum, once a certain level of national income is reached, there is very little further gain possible, with an apparent ceiling of life expectancy in the high 70s. Whether this will change in the future with improving technology remains to be seen. If we move on to examine the effects of national income on cancer, we see another interesting effect. As wealth increases so does the risk of developing cancer. This is partly an effect of lengthening life expectancy – if you don’t starve or die young from infection, you have a much better chance of living to relatively old age and getting cancer. Other factors are also at play: for example, once national income exceeds around $5,000 per person, cancer occurs at a rate of 250-400 cases per 100,000 people
per year. However, there are a number of countries with income in this bracket but with a cancer rate of less than one-third of this rate, all in the Middle East. This has been attributed to widespread adherence to more traditional, less Westernized lifestyles despite rising national income.
Conversely, there is a cluster of countries with Western-style high cancer rates but the income of less than $5,000 per head. These turn out to be former Soviet bloc states who seem at first glance to have the worst of outcomes – Western diseases at developing world incomes. On closer inspection, however, the picture is less gloomy – the low income is real but the high cancer rates reflect long life expectancy due to well-organized healthcare systems. The recent discussions about the relative merits of ‘socialized medicine’, and in particular the NHS and the US system, highlight the need for dispassionate analysis. Whilst it is true that there are differences in some outcomes between the US and UK, overall life expectancy is very similar for all countries with well-developed healthcare systems – despite recent US Republican talk of NHS ‘death panels’, the truth is that Western healthcare is pretty good at keeping most of its citizens alive into old age. Whilst all of this is true at the level of state funding when cancer therapy tends to hit the press is when access to a new therapy is denied someone, usually presented as a variant of the staple news story of ‘patient refused life-saving drug by faceless bureaucrat’. This is the origin of the Republican allegations about NHS death panels (in truth, of course, US patients with no healthcare will also be denied the same treatment by a different set of bureaucrats or perhaps their bank manager). Why do these stories occur in some of the wealthiest countries in the world? What are the likely future trends in funding and costs?
Like most commodities, medical care tends to cost more year on year – inflation. It is possible to measure the rate of medical inflation, and in general, this turns out to be higher than the underlying inflation rate in the economy. This is important as it means that without cost-cutting, healthcare over time will consume a bigger proportion of national income in keeping up with new technologies. This is best illustrated by the US economy where the medical inflation rate in 2008 was 6.9% – roughly double the rest of the economy. On current projections, this would see the US health spend to increase from 17% of national income in 2008 to 20% by 2017. The massive changes in the world economy since the banking crisis make it very unlikely that this can be sustained. Similar figures apply in all the major economies. Why are costs rising in this fashion? After all, when the NHS was set up, Aneurin Bevin, one of its key architects, envisaged falling costs with time as health improved. The reason lies in the costs of developing new treatments. A licensing trial for a cancer treatment will typically cost around £100,000,000. Newly licensed drugs thus need to recoup these massive development costs, plus the costs of all the drugs that fell by the wayside in the process and will thus never generate any revenue. Patent life remaining by the time a drug is licensed is typically 10 years or less, as drugs need to be patent-protected many years before the licensing process is complete. The bulk of the cost of a new drug, therefore, reflects the costs incurred before licence – the actual manufacturing, while expensive, is typically only a small proportion of the price per pill. When a drug comes off patent the cost of a drug will usually fall with generic competition by around 90-95%, reflecting this.
The price charged for a new drug will thus be geared to paying back the massive development costs and then turning a profit before the patent licence expires. With globalisation, prices tend to be similar worldwide, making new drugs particularly hard to afford in poorer countries. The pricing policies of pharmaceutical companies are not in the public domain but are presumably set to maximise income worldwide. For some countries, such as the UK, Australia, and New Zealand, this will often be above the price the health system is prepared to pay. This is presumably offset by the higher income generated by the greater price obtained in less restrictive health systems. For example, in France, once a drug is licensed, it can be freely prescribed by the relevant specialist with no direct expenditure cap. This has a big influence on rates of uptake and total spend, as we shall see later in the text. However, the ongoing trends of medical inflation and rising costs of development will exert pressure on the budgets everywhere and make access to therapies more and more of a problem.
Similar arguments apply to devices – see, for example, the new robotic surgical technology described in the previous text. A report from the well-respected Karolinska Institute in Helsinki examined the issue of cancer drug funding in some detail. The report examined the trends across the European Union and compares spending patterns in different member countries as well as summarising worldwide issues. Globally, the cancer drugs market was valued at $34 billion in 2006, rising to $43 billion by 2008, with an annual research spend of $6-$8 billion by the pharmaceutical industry and a further $3.6 billion by the US National Cancer Institute and 1.4 billion in the EU. Around half of all the drugs in trials worldwide are cancer therapies. Within the EU, sales of cancer drugs per 100,000 populations increased from less than 500,000 in 1996 to more than 2.5 million by 2007 – a six-fold increase in 10 years.
Furthermore, this rise was not driven by expensive new drugs, though these are a growing strain on budgets, but mostly by increasing use of existing drugs. These two trends show the increase in drug spending broken down by the year in which a drug was licensed. Also shows the contrast between spending in France, where there are essentially few controls on oncology prescribing, and the UK, where it is tightly regulated.
Why should older drugs have seen such a big increase in expenditure? The answer lies in how drugs are licensed and then subsequently used. If we look the breakdown of cancer therapy, we can see that around 40% of patients develop advanced cancer at some stage, most of whom will ultimately die from the disease. New drugs are generally tested initially in this group of ultimately incurable patients with limited options. In breast cancer, for example, only a minority of patients die from the disease and hence expenditure on a newly licensed, the end-stage drug will be relatively limited. However, if a drug works well in this group, it will often work better in earlier patients with potentially curable disease at high risk of relapse after their initial therapy. This group makes up around half of the patients who end up with advanced disease. Trials of successful end-stage drugs will thus take place in these patients and if successful the drug will
‘migrate’ into the earlier disease group. This process is well illustrated by the Herceptin (trastuzumab) story. The drug was shown to prolong survival in advanced breast cancer in 2002. From the beginning, Herceptin has attracted huge publicity. The novel nature of the treatment rapidly became known amongst breast cancer patients leading to a clamour to enter the trials. So great was the demand that a lottery for trial entry had to be set up for interested eligible patients. After the drug obtained a licence, its high price (around £30,000 per year) led to restricted access in the UK and a different sort of lottery – the post-code lottery of UK cancer funding – began for a different group of women. The subsequent highly vocal campaign by women successfully overturned the restrictions but also set a precedent for other groups seeking access to expensive therapies that still bedevils purchasing authorities in the UK in particular.
Subsequent trials in earlier disease showed in 2006 that if given to women with the early high-risk disease after surgery, Herceptin reduced the chances of a disease recurrence by about half compared to previous therapies. The licence for Herceptin was thus extended to this earlier disease group the same year. Unfortunately, we cannot currently identify those who will relapse after surgery and radiotherapy. As most women in the early, high-risk group were already cured by standard therapy, the numbers eligible to receive the drug increased hugely (about four-fold in the UK) – all patients at risk have to be treated, not just those destined to relapse. Following a vocal campaign by women with the disease, the drug was made available on the NHS to all eligible patients. How, therefore, do healthcare systems make decisions about new treatments? Suppose a new treatment costs £30,000 and improves survival by 6 months, from 12 to 18 months. What is the real cost of providing this treatment?
• £30,000
• £30,000 minus the treatment it replaces
• £30,000 minus the treatment it replaces and minus any consequent savings in other supportive care
There is no correct answer – it depends on who is paying for what. Answer 1 is the cost to the patient if the treatment is not reimbursed by the healthcare system. This is sometimes the case in the UK where the NHS sets limits on which drugs it will buy. The old standard of care will be covered but not the new drug. Increasingly, it is also a problem for patients in insurance-based systems where the extra drug falls outside the reimbursement package covered by the insurance. Answer 2 is the price to a hospital providing specialist care where the hospital budget per patient is fixed (as happens in hospitals in the NHS and some managed-care systems in the USA). Answer 3 is the price to the organisation funding the totality of the patient’s care: this may be the state via structures like the NHS or an insurance company. This then raises the further question of what exactly is included in the associated costs. For example, terminal care costs will probably be similar whenever a patient dies. However, if the survival time is longer, as in the example, they may then fall in a different financial year to the drug costs – how long must costs be deferred to count as savings? This is particularly the case with treatments which increase the cure rate, for which such costs may be postponed for many years. Again, there is no single simple answer to such questions – different healthcare systems tend to resolve these dilemmas in different ways. It is worth examining the sort of methodologies used by public health specialists and insurance companies in making these decisions on whether to fund a particular treatment.
A frequently used method is to estimate the cost per year of extra life generated by the new treatment.
A correction for the overall quality of that life is often also applied. The aim is to produce a measure known as a quality-adjusted life year (QALY). For example, a treatment that prolonged your life by a year but at a 50% reduction in quality would be costed as 0.5 QALY. This sounds very neat, and it allows purchasers of healthcare to compare a drug therapy that prolongs life by 3 months with a hip replacement which improves the quality of life with no effect on life expectancy. For well-established treatments such as surgery and radiotherapy, patients are frequently cured, and thus this cost is spread over a large number of life years gained. Thus, although major surgery is expensive, it has a very low cost per QALY in most cases. In contrast, new drugs that prolong survival by relatively modest amounts in end-stage disease often have a very high cost/QALY, and this is where the problems start.
An immediate problem with adjusting for quality of life is clearly apparent – how do we define how much a person’s quality of life is affected? For example, Mr A leads a sedentary life and mainly enjoys watching TV for recreation, therefore an impairment which stops him running will matter very little. Mr B, however, is a keen triathlete and finds the same loss of mobility hugely distressing. Clearly, any quality adjustment is subjective and will depend on those affected. Somehow an average value must be arrived at and added to the equation.
A second problem is how to measure the gain in survival. This may seem straightforward, but often licensing trials will focus on the time taken for the disease to worsen (so-called ‘time to progression’) rather than overall survival. Subsequent ‘salvage’ treatment may, therefore, improve
the outcomes of the patients in the initial control arm of the trial. Endpoints for these trials are set by the regulatory authorities, such as the US Food and Drug Administration and the European Medicines Agency, and determine whether a company is granted a licence to market their product. However, just because a drug can be marketed does not mean that a healthcare system will buy it.
In order to illustrate how this process works, I will run through the recent trials carried out with a new drug in advanced kidney cancer. In the trial, patients on the placebo were deteriorating twice as quickly as those on the new drug called sorafenib. The Independent Data Monitoring Committee for the trial decided the study should be stopped on ethical grounds and all the placebo patients still alive were offered the new drug. When the overall survival times were subsequently analysed, the patients initially on the new drug lived longer than those on placebo. However, due to the salvage effect from the crossover from placebo to active drug, the survival advantage for the new drug was much smaller than would have been expected from the effect on time to progression. It is thus impossible to calculate the survival benefit of sorafenib in advanced kidney cancer as this trial can never be ethically repeated with a no-treatment arm. Any estimates for the cost per QALY for this disease are thus doubly flawed – the effect on quality of life is subjective and the true survival gain unknown.
This double uncertainty paralysed the UK decision-making process for kidney cancer from 2006 to 2009. The use of decision-making based on quality-adjusted survival has been pioneered extensively by a UK body with the somewhat Orwellian title of National Institute for Health and Clinical Excellence, usually known as NICE. This body seeks to advise the health service which treatments it should purchase on behalf of the patients and which treatments are not considered good value for money and should not be routinely funded. NICE does not consider unlicensed or experimental treatments. Some other European countries have adopted similar methodologies, but as yet the more free-market approach in the USA has shied away from such central direction. NICE will often take months or even years from the initial licence to give an opinion on a drug. In the UK, the NHS funding is split between ‘purchasers’ and ‘providers’. Currently, the purchasers are called Primary Care Trusts (PCTs) and are tasked with making the same decisions (to buy or not to buy a particular treatment) on a local basis. At the time of writing, in 2011, this purchaser role is set to be transferred to family doctors (GPs) under forthcoming NHS reforms. The current PCTs discharge this role with varying degrees of competence and thoroughness, often simply providing the cheapest option until forced to provide a more expensive one by subsequent NICE guidance. This leads in turn to the (in)famous UK post-code lottery – as PCTs are geographically based, access to any NHS treatment is determined by the patient’s address and the local PCT decision-making process. In 2008, this resulted in the highest spending PCTs allocating around £15,000 per patient for cancer care compared to around £5,000 for the lowest spending ones. In my own clinic, patients with a Birmingham post-code (a high-spend area) enjoy good access to, for example, the latest kidney cancer drugs. Conversely, most of the surrounding counties have relatively low cancer drug spends and access to the same drugs is severely restricted. As patients clearly talk to each other in the waiting room the level of frustration and anger generated can be readily imagined. We carried out an audit of survival times by post-code for our patients with advanced kidney cancer. Patients from the low-spend areas survived around 7–8 months on average, compared to around 2 years for those from the higher spending Birmingham area – a very real and worthwhile difference. In addition, patients denied access to the expensive drugs had roughly three times as many visits to the hospital due to increased rates of disease complications from their untreated cancer. This state of affairs persisted for 3 years from 2006 (when the new kidney cancer drugs were first licensed) to early 2009 when NICE finally recommended that one of these drugs, sunitinib, be made available to all kidney cancer patients (though access to other recently licensed kidney cancer drugs remains heavily restricted). Clearly, the PCTs not funding these drugs would argue that they have used this money elsewhere to produce a bigger gain for a different group of patients. I am not aware, however, that there is any good evidence that poorer outcomes occur in other groups of Birmingham patients compared to their shire county neighbours as a result of lack of funds. The
present UK system strikes me therefore as cumbersome, unnecessarily bureaucratic, and in many
cases ill-informed. Those making the decisions, allegedly on behalf of the public, are not in any way publicly accountable for their decisions – they are not elected, for example – and often will not publicly defend them. On the other hand, in an era of rising costs, an ageing population, and shrinking budgets some form of choice must be made and thus structures like NICE will probably become more common worldwide in the future.
The proposed new UK purchasing arrangements will mean that one group, GPs, will be both purchasers and providers, with a second group, the specialist care sector in hospitals, being purely providers. It will mean GP consortia will have a financial vested interest in keeping patients out of hospitals, which may or may not be a good thing. On the other hand, they will have to justify to their own patients, in a way that the current PCTs do not, why they have chosen to refuse to fund for certain treatments, as inevitably they must. It remains to be seen whether the possibility of lower management costs translates, as the government hopes, into better frontline care, as it is not immediately clear to me why GPs are the best people to decide on specialist care choices.
The cumbersome decision-making process in the UK also tends to delay uptake of new cancer drugs and reduce overall spending compared to other similar European economies. Although not formally published, it is estimated that NICE has a target spend of up to £30,000 per quality-adjusted life year gained, treatments costing more being denied funding. Other countries have less formalised methods, but appear to informally apply higher cut-off levels. Currently, the UK spends around 60% of the levels reached in countries such as France and Germany on cancer drugs as a result of this lower cutoff point. This difference seems to be particularly focused on cancer therapy as no such disparity exists in other specialisms such as cardiovascular disease or psychiatry, two other big-spend areas. This is well illustrated by the patterns of spending on sunitinib in kidney cancer since licence in 2006, with the UK showing a late, slow rise in spending on the drug compared to the EU average and Italy, France, Germany, and Spain in particular. It cannot be a coincidence that the relatively poor cancer outcomes seen in the UK compared to our European neighbours occur in a country with a relatively low spend on cancer drugs and big disparities in spend per patient by post-code. The future trends in spending also look challenging. There are currently 77 drugs licensed in the UK for the treatment of cancer (this ignores drugs for supportive care). Around 25 of these were licensed 1995-2005. Around 50 drugs were approved in the period 2007-2012. Clearly, not all of these drugs will succeed in jumping the final hurdle. Furthermore, many will offer only very small gains over alternative treatment options. Some of these drugs, possibly many, will, however, offer big further gains. In addition, there will be the ongoing trend of existing new expensive drugs migrating to earlier disease settings and larger markets as illustrated for Herceptin in breast cancer. All of this will undoubtedly put further heavy financial pressure on all health economies. An interesting trend at the international conferences I attend has been a discussion of these points. Until recently, this was only a topic of interest in the UK due to our relatively poor access to new drugs. Increasingly, even US speakers, with previously apparently bottomless health budgets to draw upon, have started to discuss affordability of new therapies. The healthcare reform package of Barack Obama has also put this same issue solidly on the mainstream political agenda in the USA. There are a few trends potentially relieving pressure. Firstly, older drugs when they come off patent usually plummet in price, often by up to 95%. Secondly, if the improvement in outcome is large enough, there may be compensatory savings in other health costs, though the expenditure is now and the savings are later and may be hard to trace (and may even accrue to another healthcare provider). Thirdly, better predictors of disease behaviour may allow us to target our expensive therapies on those most likely to benefit. For example, if we knew which breast cancer patients would be cured by surgery alone (the majority), we could save a huge proportion of our adjuvant therapy drug costs. Research into such predictive biomarkers is one of the hottest areas in cancer at present for this reason. Research into new clinical trials methodologies may also help to reduce development times and thereby drug costs.
How these factors play out in the coming years remains to be seen, and it is likely that different solutions will emerge across the globe. Within Europe, we are likely to see the principle of universal coverage for state-of-the-art care increasingly slipping. The picture in the UK where NICE decides on affordability is likely to become more widespread as a model for decision-making, despite the problems experienced by NICE operationally. This then raises the linked issue of top-up funding, already a political hot potato in the UK. Private insurance to top up state provision may also become more the norm as the costs are much lower than for policies aimed at replacing state provision. In the USA, a major issue of partial coverage remains. Even for those with insurance, I suspect we will begin to see some attempt to limit expenditure on the most expensive cancer therapies. Outside the major Western economies, we are likely to see cancer incidence rising as life expectancy improves with economic growth. As seen in this chapter and the previous one, the best-value cancer therapies are surgery and radiotherapy, and we are likely to see a growth in these services in developing economies. The extra gain from drug therapies is relatively small, so access to these is likely to be more restricted to cheaper, older drugs, with the most expensive therapies confined to a small minority in these countries.
