Maybe we are to blame in part for rising cancer drug prices

The prices of oral cancer drugs are rising.  This will come as no surprise to anyone who has cancer or who knows someone who has it, but this excellent study documents that fact beyond a shadow of a doubt.  Even after introducing a new cancer product at some price, the seller, protected by patents, increased the price by 5% a year on average.  This is higher than price growth from economy wide inflation in the same period, while other medical prices also grew excessively, but not by as much, and total drug spending hardly grew at all.

But cancer (and other “specialty” drugs) were the exception.

Why did these prices increase at this pace?  My visceral reaction, which I suspect is the same as yours, is to rail against “corporate greed,” something we have seen on display for even old drugs to a spectacular extent lately.

But then there is a logical problem.  If the seller with a patent sets the price to make the most profit, why did they set so much lower a price in 2007 than today (because that is what price growth means)?  Was there some defect in the greed gene ten years ago that gradually worked itself over time?  Or was the market for cancer drugs more competitive then than now?

Neither explanation seems plausible. Economic theory says that monopoly is responsible for high prices but not more rapidly rising prices—unless the monopoly power grows over time.

But here is my guess. The combination of rising consumer income (even with the recession) and the spread of drug insurance meant that the maximum amount consumers or their insurers were willing to pay for these effective drugs for desperate situations grew. It was growth in demand or consumer value that persuaded drug firms to develop drugs that would be profitable if introduced at higher prices.

To be sure, the life years added by some drugs may seem to some analysts to be low value for the money—but these drugs were still better than what went before, sometimes spectacularly so.

If we consumers want to do something about rising prices for cancer drugs, we need (according to the hard-hearted economist) to do what happens when prices for gas, or steak, or designer ties is rising—we need to walk away from them. A tepid demand response will itself temper prices as well as total spending, and perhaps offer a cautionary lesson for future health care price increases.


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