A recent study by IMS Health estimates that global spending on cancer medication will soar from $65 billion in 2013 to nearly $100 billion in 2018. That forecast suggests that oncology drugs' premium price tag could threaten the financial security of millions of Americans.
According to a 2013 study conducted by the Fred Hutchinson Cancer Research Center in Seattle, cancer patients are significantly more likely to declare bankruptcy than non-cancer patients.
The study, which looked at the bankruptcy rates among Washington State cancer patients between 1995 and 2009, found that 0.52% of cancer patients declared bankruptcy within one-year of their diagnosis, versus just 0.16% for the average person. Within five years of diagnosis, the bankruptcy rate jumped to 1.7% of cancer patients, versus just 0.7% for non-cancer patients. Thyroid, lung, uterine, leukemia/lymphoma, colorectal, melanoma, breast, and prostate cancers were ranked as the diagnoses most likely to result in a cancer patient declaring bankruptcy.
The surging cost of oncology drugs and their impact on patients has led to push-back by frustrated doctors. In the past year, doctors at Fred Hutchinson and Memorial Sloan Kettering have referred to the impact of high cost medicine on patients as "financial toxicity."
Next generation medicine
Innovation is a major cause of the abnormally large percentage of cancer patients being forced into bankruptcy. Increasingly, new FDA-approved medicines that more accurately target cancer cells based on specific gene mutations or use new and improved targeting technologies, carry higher prices. For example, Bristol-Myers Squibb's Opvido, a drug that uses a patient's immune system to battle cancer, won FDA approval for the treatment of melanoma in December. That approval was based on clinical trials showing that 43% of Opdivo patients were still alive after two years; however, that survival comes at a price. Opdivo costs roughly $150,000 per patient per year.
However, it's not just more effective; next generation medicines are taking more of a toll on wallets. Novartis' Gleevac, approved to treat CML, cost just $28,000 per year in 2001, but costs more than $90,000 per year today. And new drugs that generate similar results to existing therapies are also carrying higher price tags. When Sanofi's Zaltrap won FDA approval in 2012, its price was initially set at $11,000 per month, or roughly two times the cost of Avastin, another drug with similar efficacy.
The high cost of next generation therapies and already-approved drugs like Gleevac have industry experts fretting that oncology treatment costs are going to keep surging higher, particularly given that many next-generation drugs will be dosed alongside, rather than instead of, pre-existing treatments. As a result, IMS forecasts that oncology drug spending will jump between 7%-10% per year through 2018 in developed markets and by 12%-15% per year in emerging markets.
Today, the pricing of drugs appears to be more of a me-too process wherein drugmakers say "that company is charging X for that medicine, so I will too." Breaking away from that pricing model is likely to be a massive challenge given that drugmakers are awarded patents and exclusivity that prohibits generic versions of their drugs to enter the market for years.
That hasn't stopped health insurers from attempting to rein in costs by shifting expensive drugs to reimbursement tiers that require higher patient co-pays. That move could help insurers keep a lid on health insurance premiums for non-cancer patients, but it could also cause more financial difficulty for cancer patients whose out-of-pocket costs are jumping.
Instead, it's healthcare reform that may be making a much more direct impact on cancer patients' financial security. The Affordable Care Act requires insurers provide insurance regardless of pre-existing conditions like cancer, and health insurance subsidies are significantly increasing the number of people covered by insurance.
During the Affordable Care Act's second open enrollment period, which kicked off in mid November of 2014 and ends Feb. 15, 2015, more than 6.8 million people so far have enrolled in health insurance through the federal exchange. Another 9.7 million people have also become newly covered by Medicaid thanks to expansion and increased awareness. As a result, the Commonwealth Fund reports that the number of adults who did not get the healthcare they needed because of cost dropped from 80 million people, or 43%, in 2012 to 66 million, or 36%, in 2014. Importantly, the number of people reporting that they're experiencing problems paying their medical bills also fell from an estimated 75 million people in 2012 to 64 million people in 2014.
Lots more to do
The most important battle being fought is against cancer, but the financial risk tied to rising cancer drug costs is likely to become a much more hotly debated topic in the coming three years. Whether or not that debate results in a systematic change in how drugs are priced and paid for is unknown, but it's a topic that everyone should be paying close attention to.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.