In 2006, Mike from Pennsylvania was diagnosed with advanced kidney cancer that had spread to his ribs. His doctor prescribed Sutent (sunitinib), at the time, a newly approved Pfizer drug, which cost $179 for a 50 mg pill. The dosage for Sutent is one pill daily for 28 days followed by a 14-day break, making the cost for one cycle of therapy $5,012. That amounted to $43,437 per year, mostly paid for by Mike’s insurance company.
Sutent was the gold standard for treatment of metastatic renal cell carcinoma for 10 years, with the seminal trial for the drug exhibiting an 11-month progression-free survival and 26 months of median overall survival in kidney cancer patients. It has also been approved by the FDA for metastatic GIST (gastrointestinal stromal tumor) and a form of pancreatic cancer. Overall, it has been a very profitable drug in Pfizer’s inventory bringing in over $1.1 billion in revenue in 2014.
Sutent is a tyrosine kinase inhibitor (TKI), which suppresses blood vessel growth and deprives the tumor of nutrients. Sutent and the many anti-angiogenic, me-too drugs developed by other pharmaceutical companies are also called targeted therapies. These drugs often have early success in fighting metastatic disease, but in a few years the tumor usually develops resistance to the drug and the disease progresses.
In November 2015, a new type of drug was approved by the FDA for treatment of kidney cancer. The immunotherapy Opdivo (nivolumab), made by Bristol-Myers Squibb, was approved in a second-line setting, that is, it is given to patients who had their tumors progress on prior anti-angiogenic therapy, like Sutent. Patients on the trial had a median overall survival of 25 months, which was quite high for second-line patients. In fact, unlike in targeted therapies such as Sutent, in a minority of cases, Opdivo and other immunotherapies following Opdivo in development, have led to long-term, durable responses in patients, especially in combination with TKIs.
Due to the success of immunotherapies, Pfizer’s revenue stream from Sutent began to decline and in August 2021, its Sutent patent expired. Nevertheless, Pfizer’s price for Sutent has continued to increase. The best price we could find for it was at Costco for $596 per pill (September 2022) or $16,692 per cycle and $144,664 per year, which is an increase of 333% over the price that Mike paid for it in 2006. The Consumer Price Index (CPI) increased 42% during that period, so Sutent’s price increased by eight times the CPI increase! But it was the same drug that Pfizer began selling nearly 17 years ago!
Middle-class patients, seniors, and the poor may not be paying the full cost of Sutent since it is covered by insurance companies, Medicare and Medicaid. However, wage earners who live paycheck to paycheck and who are either uninsured or underinsured are faced with medical costs that either lead to foregoing therapy or personal bankruptcy. In recent surveys, people cited medical expenses as the second leading factor, behind loss of income, that led them to file for bankruptcy.
The American Society of Clinical Oncologists (ASCO), when commenting on a 60 Minutes piece about cancer drug costs, stated that “…high costs are causing many patients and families to face impossible choices during the most difficult time of their lives, with some patients delaying potentially life-saving treatments and others forced into personal bankruptcy.” In a Consumer Reports survey taken in 2012, it was found that 45% of people without a prescription drug plan skipped filling a prescription due to cost.
The pharmaceutical companies argue that they have to charge such high prices in order to pay for the costs of research and development. A 2016 study by the Tufts Center for the Study of Drug Development stated that the cost of developing a single new drug comes to $2.6 billion! This estimate is three times greater than Tuft’s earlier 2003 study of R & D costs, which amounted to $802 million per drug. Part of the drug company costs is the differential between what the drug companies would have made by investing their R & D expenses in the stock market instead of developing drugs. Given that argument, based on the market’s 2022 performance so far, perhaps we all should receive rebates from the drug companies for the money they’ve saved by not investing in the market.
The Tuft figures are usually taken at face value by the media when discussing drug prices. But the Tufts study is not an independent or government project whose data are available to the public. Without drug company support, the Tufts Center might not even exist as 40% of its basic funding comes from drug companies, not including special report subsidies. Furthermore, the data for the study are supplied to Tufts by the drug companies themselves and are not available to outside analysts. Such lack of transparency makes it difficult to evaluate their claim.
Donald W. Light, from Princeton, and Rebecca Warburton, from the University of Victoria in Canada, wrote an in-depth critique of the Tuft Center’s 2003 study in the journal Biosciences[1] in 2011, and, found it to be problematic. Among their points were: the report’s data are “confidential and unverifiable”, and there was no mention of therapeutic class even though costs can vary widely depending on the class —for example, for psychotropic drugs, very large numbers of subjects are needed to detect statistically small differences between new drugs and existing ones, thus inflating the costs of trials.
The pharmaceutical industry uses Tuft’s inflated figures “to justify its enormous prices,” says Dr. Jerome Avorn, a Harvard Medical Professor of Medicine, a drug pricing expert, and author of Powerful Medicines. He adds that “the report ignores the very important research dollars that are spent by taxpayer-funded NIH grants to non-profit university centers, which often discover the key findings that lead to a new drug.” Innovative drugs and vaccines can be produced for much less, according to consumer advocate Ralph Nader. As evidence, he points to the Defense Department, which developed its own malarial treatments for five to ten million dollars per drug after the drug companies refused to do the R&D.
Response of Cancer Specialists to Rising Drug Prices
The backlash to the rising drug prices came from a surprising quarter — top cancer specialists, many of whom have researched the compounds, administered the drugs to patients, and often acted as consultants to the manufacturers. It began when three doctors at New York’s famed Memorial Sloan-Kettering Cancer Center refused to offer a newly FDA-approved cancer drug to their patients. They threw down the gauntlet to the pharmaceutical industry, the insurers, and Medicare by proclaiming their decision in an Op-Ed piece in The New York Times on October 14, 2012. “The drug, Zaltrap, has proved to be no better than a similar medicine we already have for advanced colorectal cancer, while its price — at $11,063 on average for a month of treatment — is more than twice as high,” wrote the authors of the Op-Ed, Dr. Peter B. Bach, Dr. Leonard B. Saltz, and Dr. Robert E. Wittes.
Drs. Bach and Saltz told their story on a segment of 60 Minutes that aired on October 5, 2014. When Dr. Saltz, a leading authority on colon cancer, compared Zaltrap, manufactured by Sanofi, to the less expensive drug Avastin, made by Genentech, he and Dr. Bach, Memorial’s maven on drug pricing, decided to do something never before done in the history of cancer treatment: refuse a drug on the basis of cost. The proof that the drug prices were “a fiction,” says Dr. Bach, came when Sanofi cut the price in half right after the Op-Ed appeared in The New York Times.
Another leader in the fight against high drug prices is MD Anderson’s Dr. Hagop Kantarjian, a world expert in the field of chronic myeloid leukemia (CML). He jumped into action because his patients were having trouble paying for Gleevec, which had tripled in price to nearly $100,000 per year since the treatment was first introduced in 2003. He was the lead author of a hard-hitting commentary published online in the medical journal of hematology, Blood, which appeared on April 25, 2013 and was signed by more than 120 CML specialists from 15 countries on five continents. The editorial charged that cancer drug prices were “unsustainable,” “unjustified,” and “harmful” to patients. It labeled the practice of charging such high prices to desperate patients who will pay any price for a chance at life as “profiteering.”
Role of Medicare in Drug Pricing
The 2003 Medicare Prescription Drug, Improvement, and Modernization Act established the federal Part D drug program to help with drug payments for millions of Medicare recipients, which provided a bonanza for the pharmaceutical companies. The drug companies lobbied successfully to bar Medicare from negotiating the price of drugs. At the same time, the law stipulated that Medicare Part D had to pay for all approved cancer drugs. “This was a double whammy,” says Dr. Kantjarian, “You cannot negotiate the drug prices and at the same time you have to pay for 100% of them. This left the drug company as the single entity that decided drug prices and allowed them to increase them without any restraining factors.” Note that the so-called benefit managers like Express Scripts and CVS Caremark can and do negotiate drug prices as does the Veterans Administration.
Memorial’s Dr. Bach wrote another Op-Ed piece[2] in the New York Times on January 14, 2015, saying that drug manufacturers are taking advantage of a mix of Medicare, Medicaid, and state laws that “force insurers to include all expensive drugs in their policies (formularies) and a philosophy that demands that every new health care product be available to everyone no matter how little it helps or how much it costs.” Other countries, such as France and Germany, he notes, decline to cover a handful of drugs that are less effective and more costly than equivalent drugs. The result is that, on average, Europeans pay half as much as Americans do for the same therapies.
The NIH’s Role in Drug Development
It is well known that the National Institutes of Health invests in basic research related to biological targets that can lead to drug development. An analysis of this thesis entitled “Contribution of NIH funding to new drug approvals 2010–2016[3]” showed the following: “This report shows that NIH funding contributed to published research associated with every one of the 210 new drugs approved by the Food and Drug Administration from 2010–2016.” The grant funding totaled more than $100 billion for basic research focusing on the biological targets which could later lead to applied research by drug companies for those targets, the point being that the NIH basic research was a prerequisite for the later drug development research.
What is Being Done About Drug Pricing?
A 2015 study of 64 drugs under Part B by the Health and Human Services Inspector General showed that 80% of the drugs’ price increases exceeded the rate of inflation.
In response to high drug prices in the United States, Congress passed, and the President signed, in mid-August 2022, the drug provisions section of the Inflation Reduction Act. Lowering prescription drug prices has broad, bipartisan support among Americans, with 80% supporting it, according to a 2022 AARP survey. Some of the Inflation Reductions Act’s features are the following[4].
- Require the federal government to negotiate high-priced drugs covered under Medicare Part D and Part B. Effective commencing in 2026.
- Require the drug manufacturers to pay rebates to Medicare if the yearly price charged by the manufacturers exceeds the rate of inflation. Commencing in 2023.
- Cap out-of-pocket spending for Part D enrollees. Commencing in 2024.
- Limit the out-of-pocket costs of insulin treatment to $35 a month. Commencing in 2023.
- Eliminate cost-sharing for adult vaccines under Part D. Commencing 2023
Cap for Part D Enrollees
Although Part D includes a catastrophic provision, there is currently no limit on out-of-pocket expenditures for Part D enrollees. A catastrophic threshold is set, and enrollees are required to pay 5% of their total drug costs above the threshold with no limit on costs, unless they qualify for Part D low-income subsidies. There are a number of other rules, but to make it short, the new law eliminates the 5% coinsurance charge and caps out-of-pocket expenses to $3,250 in 2024 and $2,000 in 2025, then, in future years, the cap will be indexed to the increase in Part D costs.
Vaccines
For historical reasons, vaccines are covered by Part D and Part B. For influenza, pneumococcal pneumonia, hepatitis B, and COVID-19, vaccines are covered under Medicare Part B with no cost-sharing for patients. For other Part B vaccines, such as rabies or tetanus, Medicare covers 80% of the cost, and beneficiaries pay for the remaining 20%. Unlike Part B vaccines, Part D officials can determine what to charge for vaccines that are treated like any other on-formulary drug. Costs sharing can be flat dollar copayments or a percentage of list price.
The new law requires that vaccines that are recommended by the Advisory Committee on Immunization Practices (ACIP) and covered by Part D, such as shingles, are to be covered at no cost to the patient. This makes coverage of vaccines under Medicare Part D consistent with coverage of vaccines under Medicare Part B. State Medicaid and CHIP programs are required to cover all approved adult vaccines recommended by ACIP and vaccine administration, without cost sharing
Negotiations
The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) established a prescription drug benefit for Medicare beneficiaries under Part D, which began on January 1, 2006. The MMA contained a “non-interference” clause, which effectively prohibited Medicare from negotiating drug prices with the drug manufacturers. The prices skyrocketed since 2005, but Medicare was stuck paying the average sales price of the drug. However, other entities like the Pharmacy Benefit Managers, who negotiate discounts for the insurers, and the Veterans Administration do negotiate discounts, the latter obtaining price discounts of 24-50% off the non-federal average manufacturer price.
The new law authorizes HHS to negotiate prices with drug companies for a small number of single-source brand-name drugs or biologics without generic or biosimilar competitors that are covered under Medicare Part D (starting in 2026) and Part B (starting in 2028). The number of drugs subject to price negotiation will be:
- 10 Part D drugs for 2026
- another 15 Part D drugs for 2027
- another 15 Part D and Part B drugs for 2028
- another 20 Part D and Part B drugs for 2029 and later years
The drugs will be selected from among the 50 drugs with the highest total Medicare Part D spending and the 50 drugs with the highest total Medicare Part B spending. The number of drugs with negotiated prices available will accumulate over time.
The following category of drugs are excluded from price negotiations:
- Drugs that have a generic or biosimilar available
- Drugs that are less than 9 years (for small-molecule drugs) or 13 years (for biological products) from their FDA-approval date
- “Small biotech drugs” (until 2029), defined as those which account for 1% or less of Part D or Part B spending and account for 80% or more of spending under each part on that manufacturer’s drugs
- Drugs with Medicare spending of less than $200 million in 2021 (increased by the CPI-U for subsequent years)
- Drugs with an orphan designation as their only FDA-approved indication
- All plasma-derived products
The legislation also delays the selection of biologic drugs for negotiation by up to two years if a biosimilar product is likely to enter the market in that time.
For other restrictions and provisions, refer to KFF’s analysis.
The Future
Since January 1, 2006, when a drug benefit was added to the Medicare program under President George W. Bush’s term, creating Medicare Part D, the Inflation Reduction Act of 2022 finally authorized HHS to negotiate drug prices with the pharmaceutical companies, albeit initially only for 10 drugs, commencing 2026. Nevertheless, pharmaceutical companies see the law as a threat to their profits, condemning the bill as an obstacle to innovation. They are now beginning the battle to repeal the law, claiming that reduced profits will force them to cut R & D expenditures, which in turn, will reduce the number of new drugs and cures for cancer and other diseases.
Germane to this discussion, the House Committee on Oversight and Reform released a report on July 8, 2021 that disclosed that the largest 14 drug companies spent $577 billion on stock buybacks and dividends during the five-year period 2016-2020. This stockholder benefit is $56 billion more than the combined R & D costs for these companies. Furthermore, the 14 companies’ compensation packages for their top executives totaled $3.2 billion over the same 5-year period. Finally, according to the committee’s report, “many of these same drug companies spent a significant portion of their R & D budget on finding ways to suppress generic and biosimilar competition while continuing to raise prices, rather than on innovative research.”
Lobbying Congress
Donations By Representative
Pharma targets its money to the politicians who are in a position to help the pharmaceutical companies when it comes to legislation related to drug regulations and drug price controls. The following table lists the top 12 donations ranked by the amount of donations made to House Representatives by pharmaceutical-company-funded PACS and individuals. All donations took place during the 2021-2022 election cycle and were released by the Federal Election Commission on Monday, September 12, 2022.
Spending by Industry
According to opensecrets.org, pharmaceutical companies outspend all other industries on lobbying. They employ 1,600 lobbyists, equivalent to three lobbyists per federal legislator, although they lobby the state governments as well. The following amounts represent total expenditure between January 1, 1998 and September 30, 2021.
Rank
Industry
Amount
Source: opensecrets.org
Pharmaceutical companies usually prefer Republicans over Democrats, but, as can be seen above, they fund politicians from both parties. Although the final vote on the Inflation Reduction Act passed along strict party lines, centrist Democrats had attempted to water down some provisions. For example, Reps. Peters (D-CA), Schrader (D-OR), and Rice (D-NY) introduced a bill that would have limited negotiations to a small subset of drugs covered by Medicare Part B that have no competition. Also, Senators Coons (D-DE) and Menendez (D-NJ) both received substantial contributions from pharmaceutical companies (PACS) over the years because a number of pharmaceutical companies are based in Delaware and New Jersey.
What is to be done?
[1] See http://tinyurl.com/crcnkbx
[2] See http://www.nytimes.com/2015/01/15/opinion/why-drugs-cost-so-much.html
[3] See Proceedings of the National Academy of Sciences (PNAS) on February 12, 2018 https://www.pnas.org/doi/full/10.1073/pnas.1715368115
[4] See the Kaiser Family Foundation (KFF) for a more detailed analysis, from which the following was taken https://tinyurl.com/4pvp9uwk
Shocking how much the pharma industry outspends others to lobby congress. (You should make a bar graph showing the difference!) Thank you for bringing this to my attention. And also spreading the word about the very interesting work of opensecrets.org.