Medicare costs growing like cancer

Medicare costs associated with cancer treatment are growing as fast as the drug companies can throw new products or new uses for old products at the malady. Problem is, the efficacy of the drugs is best measured by the drug companies' income statements rather than the health of the patients being treated by all this nothing's-too-good-for-my-little-girl care. All this according to BusinessWeek according to the New England Journal of Medicine:

Although it is not the case with other drugs, Medicare must reimburse doctors or patients for virtually all cancer drug uses, even those not yet approved by the Food & Drug Administration. And it is not permitted to favor the lowest-cost treatment. As a result, says author Dr. Peter Bach of Memorial Sloan-Kettering Cancer Center in New York, "the prices of cancer drugs appear to be rising faster than the health benefits associated with them."

Bach notes that Medicare spending on drugs administered in a doctor's office, the vast majority of which are cancer treatments, rose from $3 billion in 1997 to $11 billion in 2004, a 267% increase. Overall Medicare spending rose by only 47% over the same period. Spending on cancer drugs is likely to rise even faster in coming years since a November decision by the agency that greatly expands patient access to cancer drugs as required by law.

Cancer drugs, long a backwater of the pharmaceutical market, have become incredibly lucrative over the past decade as a new generation of treatments arrived with fewer side effects and better outcomes—but only for some patients. The prices of these drugs, however, are much higher than for cancer treatments in the past because there are few if any competitors for any one drug. Fifteen years ago, Bristol-Myers' (BMY) Taxol was the only commonly used cancer drug that cost more than $2,500 per month. Today, Genentech's (DNA) Avastin, Eli Lilly's (LLY) Erbitux, and Novartis' (NVS) Gleevec, all widely used, can cost $10,000 per month and up.

Medicare now allows reimbursement for an extremely broad range of "off-label" cancer treatments (meaning the drugs are used in ways that have not yet been approved by the FDA). Off-label uses are incredibly common in cancer therapy because oncologists often try a broad range of drugs against a tumor until they find one that works.

But Bach argues that the high spending on cancer drugs has brought little advantage to patients. Several studies have shown, for example, that the magnitude of the cost increase for each new drug for colon cancer exceeded the magnitude of improvement in efficacy. "It's pretty clear with many of these new drugs, their cost effectiveness is lower than previous drugs," Bach told BusinessWeek. "For each extra day or year of life they give, we're paying more than we did for the last one."

Medicare is barred by law from negotiating with drug companies on prices, but it can hold the line when it concludes that several drugs are virtually interchangeable. In that case, the agency can reimburse for the least costly alternative, no matter which drug is used, or choose a weighted average of prices for that class of drug. When it comes to cancer drugs, however, Congress requires Medicare to pay for any drug used "for a medically accepted indication," or for which the treated condition is major or life-threatening.