Does the clinical value of a drug predict Medicare expenditures?

In short, the answer is negative, as we found in our study published in the Journal of Cancer Policy. Our analysis also revealed other interesting findings.

In our recent paper out in the Journal of Cancer Policy (also available here), we found no statistically significant relationship between the clinical value of newly approved anticancer drugs and their prices. This conclusion was based on an analysis of all anticancer drugs approved by the FDA over a ten-year period (2012–2021).

Global rise in launch prices.

During this time, annualized inflation-adjusted launch prices for new anticancer drugs rose sharply—from $114,000 in 2012 to $256,000 in 2021—representing a compounded annual growth rate (CAGR) of 9.4% (see the figure).

No relation with clinical value.

While factors such as overall survival (OS) or progression-free survival (PFS) were not predictors of price, the study identified the “year of approval” as the strongest factor influencing pricing. This finding suggests that pharmaceutical companies use a price-referencing strategy, setting new drug prices based on those of prior approvals.

This approach challenges the industry’s claim that drug prices reflect clinical value.

To better understand pricing dynamics, our work also explored a wide range of potential predictors, including hazard ratios, response rates, incidence, mortality, trial size, line of therapy, biomarker testing, development time, boxed warnings, and more. Despite this broad approach, the analysis revealed that neither OS nor PFS hazard ratios were statistically significant predictors of drug prices. Again, the drugs “year of approval” emerged as the dominant factor.

Factors associated with higher prices: smaller market share and single-arm trials.

We also found that factors influencing negatively the potential size of the patient population – such as rare disease classification and biomarker testing requirements – were positively associated with higher prices. These findings suggest that pharmaceutical companies compensate for smaller market sizes by setting higher prices.

The study also identified a notable trend: the growing reliance on single-arm trials as the basis for drug approvals. These trials, which lack comparator arms, are unsuited for thorough and reliable evaluations. More than half of the newly approved drugs analyzed in the study were supported by data from single-arm trials. On average, these drugs were priced higher than those assessed through randomized trials with comparator arms.

To address this concern, we recommend that the Centers for Medicare and Medicaid Services (CMS) consider the absence of a comparator arm when determining reimbursement policies.

Conclusion

The study’s findings highlight the significant implications of price-referencing strategies employed by pharmaceutical companies for newly approved anticancer drugs in the U.S. By linking the prices of new anticancer drugs to those of recently approved ones – without regard for their clinical value – these strategies contribute to rising prices that are often disconnected from patient outcomes. This pricing approach risks failing to adequately reward genuine clinical value and may send unclear signals to drug developers, potentially misaligning incentives and deprioritizing innovations that enhance patient care. When prices do not reliably reflect clinical value, the focus on improving patient outcomes can be diminished, ultimately impacting public health. Addressing this issue will require collaborative efforts from regulators, payers, and policymakers. Read our full paper here!