Academic Literature

Limits on Medicare's Ability to Control Rising Spending on Cancer Drugs

The growth in spending on cancer drugs can be attributed primarily to a unique legislative and regulatory framework that shields such drugs from the strategies that Medicare typically uses to hold down prices.
Originally published on 02/05/2009 in The New England Journal of Medicine

Fifteen years ago, the only commonly used cancer drug on the market that cost more than $2,500 per month was paclitaxel (Taxol, Bristol-Myers Squibb). Today, new cancer drugs cost many times that amount.

Spending on cancer drugs has risen faster than spending in many other areas of health care, in part because of rising prices and increased rates of use. For Medicare, spending on Part B drugs - a category dominated by drugs used to treat cancer - increased 267% from 1997 to 2004 as compared to the rise in overall Medicare spending of 47% during the same time.

There are a few major strategies Medicare uses to rein in spending: controlling utilization through determination of coverage, drug interchangeability, and through third parties. However, laws, regulations, and court rulings prevent Medicare from effectively managing increasing costs of cancer therapies. For instance, Medicare requires coverage of all or substantially all cancer therapies, which limits Medicare's ability to have discretion over coverage for Part B and Part D drugs (for plan sponsors). Price competition through interchangeability for a blended reimbursement is not applicable due to the strict standards of determining how a drug is multi-source, which excludes cancer drugs. Similarly, Least-Costly-Alternative (LCA) reimbursement and competitive bidding processes are restricted when cancer drugs are considered sole-source.

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