How to Solve Unaffordable Drug Prices in the United States

In a free-market economy, commodities are priced according to what the market will bear. But when commodities affect life and death or human suffering—for example, food supplies during a famine—we apply the moral standard of a “just price.” I believe that standard should also apply to cancer drugs. Unfortunately, today it does not (see “A Tale of Two Drugs.”).

In the United States, the prices of patented cancer drugs have increased by a factor of 5 to 10 since before 2000. In 2012, 12 of the 13 new drugs approved for cancer were priced above $100,000 per year. This exorbitant, unsustainable increase is harming our patients and our health-care system. In my own practice, I often talk with patients about a particular therapy only to discover later that they cannot afford it. For the U.S. as a whole, it is estimated that between 10 and 20 percent of patients may decide not to take the treatment or compromise significantly on the treatment plan. Doctors, who are obliged to “first do no harm” to their patients, should be doing something about drug prices.

A just price for drugs would allow pharmaceutical companies reasonable profits while keeping treatments affordable to patients and to the health-care system. There is good evidence that the companies can afford to reduce prices. They spend only 1.3 percent of revenues on basic research and 5 to 13 percent on clinical research, compared with 20 percent on advertising. Importantly, 85 percent of basic cancer research is funded by U.S. taxpayers.

One way to set drug prices is to consider their potential benefit to a patient. It is hard to calculate the value of human life, but many experts believe that one extra year can be worth about $50,000 to $60,000. Cancer experts and drug companies could use that figure to formulate reasonable price ranges for newly approved drugs. If a drug can lengthen a person’s life by a year or more, it would cost $50,000 to $60,000 a year. A drug that extends life by six months would be priced at $30,000. In this way we could reduce the harm caused to patients by excessive prices for new cancer drugs. That would bring a more humane and moral approach to the business of selling life-saving treatments.