Reimbursement for Expensive Cancer Therapies: The Role of Cost-effectiveness Analysis

Gary C. Yee, PharmD, FCCP, BCOP

May 2010, Vol 1, No 1 - Health Economics

Due to changes in the US Food and Drug Administration (FDA) approval process for cancer drugs, many new cancer drugs have been approved over the past 10 to 15 years. Although the availability of these new drugs has improved survival for many cancer patients, there is increasing concern over the cost of these agents.1 The global oncology market is predicted to increase 12% to 15% each year, from $48 billion in 2008 to $75 billion to $80 billion in 2012.2 About 70% of all sales of cancer drugs in North America and the European Union are of agents introduced in the past 10 years.

Although purchasers and payers have always been concerned about healthcare costs, recently concerns have been raised by providers (ie, hospitals and oncologists) and patients. In an effort to control the utilization of expensive specialty drugs, many insurers have added a fourth tier to their pharmacy benefit plans.In contrast to the modest copayments required for other tiers, the fourth tier usually requires that patients pay a percentage of the drug cost (ie, coinsurance). Coinsurance payments, which generally range from 20% to 33% of the drug cost, can sometimes exceed $10000 each year. Elderly patients with Medicare coverage who receive their chemotherapy in the clinic setting are subject to similar coinsurance payments. As a result, many patients cannot afford the coinsurance payments.4 With declining reimbursement, private oncology offices and hospital-based clinics are caught in the middle, and many now require up-front payment before chemotherapy administration.5 In a recent survey, 23% of oncologists responded that costs influenced their treatment decisions, and 16% said that they omit discussion of very expensive treatments when they know that cost would place a great strain on patient resources.6

In this review, a recently published cost-effectiveness analysis will be used to illustrate how these types of analyses may be used by policymakers to make reimbursement decisions concerning cancer drugs.

Case Study: Sunitinib for First-line Treatment of Metastatic Renal Cell Carcinoma

Sunitinib malate (Sutent) is a recently approved, orally administered small molecule with antitumor activity against renal cell carcinoma, gastrointestinal stromal tumors, and other solid tumors. The annual cost of sunitinib in the United States is $50000 to $60000. A recently published, large, multicenter, randomized, phase 3 trial showed that sunitinib was superior to interferon alfa in patients with previously untreated metastatic renal cell carcinoma.Sunitinib-treated patients had a significantly higher objective response rate (31% vs 6%, P <. 001) and longer median progression-free survival (11 vs 5 months, P < .001) than those treated with interferon alfa. In a recent update of that trial, patients in the sunitinib group had longer median overall survival than those in the interferon alfa group (26.4 vs 21.8 months), although the difference was of borderline significance (P = .051).8

Based on the results of that phase 3 trial, a Pfizer-supported cost-effectiveness analysis was conducted, and the results of that analysis were recently published.9 A Markov model was developed to evaluate the cost-effectiveness and cost utility of sunitinib (as compared with interferon alfa or interleukin-2) in a hypothetical cohort of 1000 patients with metastatic renal cell carcinoma receiving first-line treatment of sunitinib. The analysis was done from a US societal perspective. Model parameters were obtained from trial results, published literature, government sources, and expert opinion. A 10-year time horizon was assumed to represent a lifetime horizon, because the model predicted that less than 1% of patients would still be alive at 10 years. Utilities were derived from quality-of-life data collected with the EuroQoL (EQ-5D) instrument in clinical trials. Only direct medical costs were included.

Sunitinib was more effective and more costly than interferon alfa. Both sunitinib and interferon alfa dominated interleukin-2 (ie, more effective and less costly). The incremental cost-effectiveness or cost-utility ratio of sunitinib versus interferon alfa was $18611 per progression-free year gained, $67215 per life-year gained, or $52593 per quality-adjusted life-year (QALY) gained (2006 US dollars; costs and outcomes discounted at 5%). A probabilistic sensitivity analysis showed that the model was most sensitive to utility values during treatment, sunitinib cost, and the cost of best supportive care.

The authors concluded that sunitinib is a cost-effective alternative to interferon alfa as first-line treatment for metastatic renal cell carcinoma because the cost-effectiveness (or cost-utility) ratios were in the range of values that society (in the United States) is willing to pay for health benefits.

NICE Declines Drugs for Metastatic Renal Cell Carcinoma

In the United Kingdom, the National Institute for Health and Clinical Excellence (NICE), a government agency, advises the National Health Service (NHS) on coverage for medicines and technologies.10 Details on its appraisal process are available online on the NICE web site ( NICE usually hires an academic group to prepare its appraisals, which include an economic evaluation that estimates the incremental cost-effectiveness (or cost-utility) ratio of the new drug. These appraisals can sometimes take 2 to 3 years after a drug has been approved. The NHS then considers these analyses when it makes decisions concerning reimbursement for that new drug or technology.

In August 2008, NICE issued draft guidance that rejected the use of 4 drugs, including sunitinib, for metastatic renal cell carcinoma.11 Although the report concluded that the 4 drugs were effective, NICE rejected them because its analysis showed that they were “not cost-effective use of NHS resources” based on its usual threshold of £30,000 per QALY (Table). It is interesting to note that estimates of the cost-effectiveness ratios of the 4 drugs from the manufacturers differed considerably from the estimates from the independent academic group hired by NICE. The estimated cost-utility ratio for sunitinib in the setting of first-line treatment in the Pfizer model submitted to NICE was about 25% lower than the value reported in the study published by Remák and associates,9 which is about the same as the difference in sunitinib cost between the United States and Britain. That decision angered patients and physicians, because the drugs are widely available in other European countries. Furthermore, British patients were angered by the NHS guidelines, which state that they would lose all of their NHS benefits if they decided to pay for the cancer drugs with their personal funds. In response to this outcry, the British government announced in November 2008 that it would not withdraw NHS benefits from patients who choose to pay out-of-pocket for cancer drugs and issued new guidelines to NICE that encourage greater flexibility when NICE appraises high-cost drugs for patients with rare and serious conditions. Some reports indicate that NICE will increase the threshold to as high as £80 000 per QALY for these selected drugs. In a final ruling announced March 25, 2009, NICE recommends sunitinib for the first-line treatment of renal cancer.

Role of Cost-effectiveness Analysis in Reimbursement Decisions

In the United States, the single largest payer of healthcare for cancer patients is the Centers for Medicare & Medicaid Services. The long-standing Medicare policy is to not consider cost-effectiveness analyses in its reimbursement decisions.12 Private insurers also have been reluctant to formally consider cost-effectiveness analyses in its reimbursement decisions. 

Although cancer drugs usually have been viewed as “off limits” for utilization management strategies, the high cost of these agents has prompted private insurers to apply these strategies to cancer drugs.13,14 Some insurers are limiting the use of these agents to FDA-approved indications, which can be problematic because cancer drugs are often used for “off-label” indications and because some drugs are approved based on limited evidence. Others are applying step-therapy protocols to cancer drugs, which require that patients fail 1 or more less expensive options before they are eligible to receive the more expensive agent. One innovative approach is a “pay-for-performance” strategy, which means that the manufacturer agrees to lower the price of its drug by providing a rebate if the drug fails to perform.15,16 Several manufacturers have already agreed to that strategy in Britain, and at least 1 large private insurer in the United States is exploring it.

Many policy experts support an expanded role of cost-effectiveness analyses in determining reimbursement decisions, including the creation of a new federally funded, independent entity (modeled after NICE) to produce comparative effectiveness and cost-effectiveness information.1,12,17-19 Some argue that payers already make these comparisons, either implicitly or explicitly. Creation of such a formal entity was recently predicted to yield savings of $368 billion to the healthcare system over the next 10 years.19

Although cost-effectiveness analyses can be useful to decision makers, healthcare professionals and the public are skeptical of the use of these types of information and are uncomfortable with efforts to allocate resources based on the economic value of a person’s life.20 Ideally, the public (ie, society) should determine how societal resources are allocated. Private employers, however, are major purchasers of healthcare in the United States. The outcry in Britain over NICE’s decision concerning drugs to treat renal cell carcinoma suggests that the public views cancer drugs differently from other drugs. In response, NICE has adjusted its cost-effectiveness threshold for certain cancer drugs. Similarly, some experts suggest Americans do not want to consider cost when making decisions concerning new cancer treatments.20


The rising cost of cancer drugs is of concern to society, particularly patients with cancer, who often cannot afford the newer agents. Although decision makers have been reluctant to consider cost-effectiveness analyses in reimbursement decisions, there is increasing support for an expanded role of these types of analyses, including the creation of a new federally funded entity to produce these analyses. As illustrated by the experiences in Britain, however, application of cost-effectiveness analyses to reimbursement decisions for cancer drugs can be controversial because of the societal burden of cancer.


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