Why a $54,000 Cancer Treatment in 1995 Now Goes for $200,000

​If ever there were an archetypal "bleak statement of everything," it might be drug prices, at least in the United States. This is where the market literally kills people; life for the sick or injured becomes a great big Running Man​ game show, where not-surviving is around every corner and in every shadow. The game show, which is the prescription drug marketplace, takes in about $91 billion annually in sales, $31 billion in the US alone.

A study out t​his week from economics researchers at MIT offers a new perspective on said marketplace, particularly among its star earners: cancer drugs. Every year since 1995, a group of 58 leading cancer medications has increased on average by 10 percent. In 1995, they cost (on average) $54,100 per year of added life, while in 2013 they cost about $207,000 per added year (on average), an almost 300 percent increase in total.

The MIT study begins with a rather incisive example. In 2004, the pharmaceutical outfit Genentech introduced a drug called Avastin for the treatment of late-stage colorectal cancers. With a sticker price of $50,000 per treatment course, it offered an average life-extension of five months. There was a backlash, but it faded quickly. In 2011, Bristol-Myers Squibb unveiled Yervoy, a melanoma treatment offering an average extension of just four months. The cost: $120,000 per single treatment course.

In 2013, a commentary in the​ Lancet offered, "[T]he cost of the new generation of drugs is getting out of all proportion to the added benefit."

In a really creepy way, it makes sense. When drugs are first invented, they're on-patent, even before they go on sale. This guarantees a monopoly for a set period of time, but that period of time depends on how long of a gap there is between the patenting of the drug and the introduction of the drug to the market. If a drug takes 20 years to develop, it comes onto the market with no period of on-patent exclusivity, in theory.

As a result, drug companies are more interested in s​hort-term projects, which disproportionately include end-of-life/minimally life extending treatments rather than drugs that might be used to keep someone alive for a long time, or even prevent the cancer in the first place. And so we wind up with a lot of Avistans at extreme price points.

Compounding the situation are two general inflation drivers, according to the current paper. One is the tendency of drug makers to price new drugs based on the price of existing drugs, even if those drugs work in very different ways.

"The theory that manufacturers set the prices of new drugs based on the prices of existing therapies (not necessarily competitors), rather than some intrinsic standard of product value, is consistent with reference price models of demand," the MIT economists write. "Reference pricing models depart from the standard economic model of consumer behavior by allowing consumers' purchase decisions to depend on a pricing anchor, or reference price, rather than on an internal comparison of price and willingness-to-pay." So: price depends on price, not value.

It's a pretty cynical way to look at things. With every new product, bump the price up just enough to stay within the boundaries of a "zone of indifference." Within this zone, drug makers can offer the stock defense of the price being "in line with other cancer treatments," while the line itself trends steadily upwards well beyond the zone.

The cynicism doesn't end there, however. Adding to the problem further is (in the US) government-mandated drug discounting. That is, pharmaceutical companies are required to offer their products at a markdown to providers serving low-income populations (though that definition has steadily expanded). That's great, but the problem is that the required discount is based on the average open-market pricing of the drug.

So: drug makers are incentivized to inflate that average as much as possible to limit the discounts they're required to offer. In short, the problem is deep as hell.

"The optimistic view of recent trends in cancer drug development is that although individual drugs may not be associated with large gains in survival," the current study concludes, "the work that goes into developing a new drug contributes to the stock of knowledge about cancer biology. Eventually, scientists will use the information gleaned from the development of existing drugs to develop new drugs with much greater benefits."

"The pessimistic view," the economists offer, however, "is that current coverage, reimbursement, and patent policies divert drug manufacturers' attention away from developing drugs that yield truly meaningful survival benefits."