CANCER MEDICAL CARE COST INCREASING
Like most commodities, medical care tends to cost more year on year – inflation. It is possible to measure the rate of medical inflation, and in general, this turns out to be higher than the underlying inflation rate in the economy. This is important as it means that without cost-cutting, healthcare over time will consume a bigger proportion of national income in keeping up with new technologies. This is best illustrated by the US economy where the medical inflation rate in 2008 was 6.9% – roughly double the rest of the economy. On current projections, this would see the US health spend to increase from 17% of national income in 2008 to 20% by 2017. The massive changes in the world economy since the banking crisis make it very unlikely that this can be sustained. Similar figures apply in all the major economies. Why are costs rising in this fashion? After all, when the NHS was set up, Aneurin Bevin, one of its key architects, envisaged falling costs with time as health improved. The reason lies in the costs of developing new treatments. A licensing trial for a cancer treatment will typically cost around £100,000,000. Newly licensed drugs thus need to recoup these massive development costs, plus the costs of all the drugs that fell by the wayside in the process and will thus never generate any revenue. Patent life remaining by the time a drug is licensed is typically 10 years or less, as drugs need to be patent-protected many years before the licensing process is complete. The bulk of the cost of a new drug, therefore, reflects the costs incurred before licence – the actual manufacturing, while expensive, is typically only a small proportion of the price per pill. When a drug comes off patent the cost of a drug will usually fall with generic competition by around 90–95%, reflecting this.
The price charged for a new drug will thus be geared to paying back the massive development costs and then turning a profit before the patent licence expires. With globalization, prices tend to be similar worldwide, making new drugs particularly hard to afford in poorer countries. The pricing policies of pharmaceutical companies are not in the public domain but are presumably set to maximize income worldwide. For some countries, such as the UK, Australia, and New Zealand, this will often be above the price the health system is prepared to pay. This is presumably offset by the higher income generated by the greater price obtained in less restrictive health systems. For example, in France, once a drug is licensed, it can be freely prescribed by the relevant specialist with no direct expenditure cap. This has a big influence on rates of uptake and total spend. However, the ongoing trends of medical inflation and rising costs of development will exert pressure on the budgets everywhere and make access to therapies more and more of a problem. Similar arguments apply to devices.
A recent report from the well-respected Karolinska Institute in Helsinki examined the issue of cancer drug funding in some detail. The report examined the trends across the European Union and compares spending patterns in different member countries as well as summarizing worldwide issues. Globally, the cancer drugs market was valued at $34 billion in 2006, rising to $43 billion by 2008, with an annual research spend of $6-$8 billion by the pharmaceutical industry and a further $3.6 billion by the US National Cancer Institute and
1.4 billion in the EU. Around half of all the drugs in trials worldwide are cancer therapies. Within the EU, sales of cancer drugs per 100,000 populations increased from less than 500,000 in 1996 to more than 2.5 million by 2007 – a six-fold increase in 10 years. Furthermore, this rise was not driven by expensive new drugs, though these are a growing strain on budgets, but mostly by increasing use of existing drugs. These two trends are illustrated in Figure 1, which shows the increase in drug spending broken down by the year in which a drug was licensed. The figure also shows the contrast between spending in France, where there are essentially few controls on oncology prescribing, and the UK, where it is tightly regulated.