RIGHT now cancer care is being rationed in the United States.
Probably to their great disappointment, President Obama’s critics cannot blame this rationing on death panels or health care reform. Rather, it is caused by a severe shortage of important cancer drugs.
Of the 34 generic cancer drugs on the market, as of this month, 14 were in short supply. They include drugs that are the mainstay of treatment regimens used to cure leukemia, lymphoma and testicular cancer. As Dr. Michael Link, the president of the American Society of Clinical Oncology, recently told me, “If you are a pediatric oncologist, you know how to cure 70 to 80 percent of patients. But without these drugs you are out of business.”
This shortage is even inhibiting research studies that can lead to higher cure rates: enrollment of patients in many clinical trials has been delayed or stopped because the drugs that are in short supply make up the standard regimens to which new treatments are added or compared.
The sad fact is, there are plenty of newer brand-name cancer drugs that do not cure anyone, but just extend life for a few months, at costs of up to $90,000 per patient. Only the older but curative cancer drugs — drugs that can cost as little as $3 per dose — have become unavailable. Most of these drugs have no substitutes, but, crazy as it seems, in some cases these shortages are forcing doctors to use brand-name drugs at more than 100 times the cost.
Only about 10 percent of the shortages can be attributed to a lack of raw materials and essential ingredients to manufacture the drugs. Most shortages appear instead to be the consequence of corporate decisions to cease production, or interruptions in production caused by money or quality problems, which manufacturers do not appear to be in a rush to fix.
If the laws of supply and demand were working properly, a drug shortage would cause a price rise that would induce other manufacturers to fill the gap. But such laws do not really apply to cancer drugs.
The underlying reason for this is that cancer patients do not buy chemotherapy drugs from their local pharmacies the way they buy asthma inhalers or insulin. Instead, it is their oncologists who buy the drugs, administer them and then bill Medicare and insurance companies for the costs.
Historically, this “buy and bill” system was quite lucrative; drug companies charged Medicare and insurance companies inflated, essentially made-up “average wholesale prices.” The Medicare Prescription Drug, Improvement and Modernization Act of 2003, signed by President George W. Bush, put an end to this arrangement. It required Medicare to pay the physicians who prescribed the drugs based on a drug’s actual average selling price, plus 6 percent for handling. And indirectly — because of the time it takes drug companies to compile actual sales data and the government to revise the average selling price — it restricted the price from increasing by more than 6 percent every six months.
The act had an unintended consequence. In the first two or three years after a cancer drug goes generic, its price can drop by as much as 90 percent as manufacturers compete for market share. But if a shortage develops, the drug’s price should be able to increase again to attract more manufacturers. Because the 2003 act effectively limits drug price increases, it prevents this from happening. The low profit margins mean that manufacturers face a hard choice: lose money producing a lifesaving drug or switch limited production capacity to a more lucrative drug.
The result is clear: in 2004 there were 58 new drug shortages, but by 2010 the number had steadily increased to 211. (These numbers include noncancer drugs as well. )
Unfortunately, there is no quick fix, because all solutions require legislation. A bill introduced in February by Senator Amy Klobuchar, Democrat of Minnesota, and Senator Bob Casey, Democrat of Pennsylvania, would require generic manufacturers to notify the Food and Drug Administration if they expected a supply problem or planned to stop manufacturing a drug. But the F.D.A. isn’t able to force manufacturers to produce a drug, and learning about impending shortages with little authority to alleviate them is of limited benefit. Indeed, early warning could exacerbate the problem: the moment oncologists or cancer centers hear there is going to be a shortage of a critical drug, their response could well be to start hoarding.
You don’t have to be a cynical capitalist to see that the long-term solution is to make the production of generic cancer drugs more profitable. Most of Europe, where brand-name drugs are cheaper than in the United States, while generics are slightly more expensive, has no shortage of these cancer drugs.
One solution would be to amend the 2003 act to increase the amount Medicare pays for generic cancer drugs to the average selling price plus, say, 30 percent, after the drugs have been generic for three years. This would encourage the initial rapid price drop that makes generics affordable, but would allow for an increase in price and profits to attract more generic producers and the fixing of any manufacturing problems that subsequently arose.
Increasing the price for generic oncology drugs would have a negligible impact on overall health care costs. Total spending on generic injectable cancer drugs was $400 million last year — just 2 percent of cancer drug costs, and less than 0.5 percent of the total cost of cancer care. If we are worried about costs, we could follow Europe and pay for the higher prices by lowering what Medicare pays for the brand-name drugs that extend life by only a few months.
A more radical approach would be to take Medicare out of the generic cancer drug business entirely. Once a drug becomes generic, Medicare should stop paying, and it should be covered by a private pharmacy plan. That way prices can better reflect the market, and market incentives can work to prevent shortages.
Scare-mongering about death panels and health care reform has diverted attention from real issues in our health care system. Shortages in curative cancer treatments are completely unacceptable. We need to stop the political demagoguery and fix the real rationing problem.