It costs $64,000. But how much is that drug really worth?

As the price of certain cancer medications continues to climb, one researcher from Memorial Sloan Kettering Cancer Center has created an online tool to generate value-based drug prices, the Wall Street Journal's Peter Loftus reports.

Peter Bach, the director of the hospital's Center for Health Policy and Outcomes, says he was driven to act after hearing about cancer patients who did not refill their prescriptions because of high costs. And his value-based tool uses a number of factors—such as a drug's side effects, how much it cost to develop, and the extra years of life it can provide—to determine a reasonable price for treatment.

Bach says manufacturers have too much control over pricing. "We could have a value-driven system for pricing cancer drugs and probably other drugs, and here’s a first draft of how to do it,” he says.

How it works

The calculator lets users analyze more than 50 cancer drugs.

• A drug's actual per-bottle cost is shown as one dot while another dot shows the value-based price, which is determined by variables adjusted by the user.
• The value of an additional year of life can be set between $12,000 and $300,000.
• Other factors such as a "toxicity discount," which reduces the price based on the severity of a drug's side effects, and development costs are also adjustable.

When the price of Amgen's Blincyto, a treatment for leukemia, is calculated using $120,000 as the value of an additional year of life with a 15% toxicity discount, its value-based price is $12,612 per month. However, the drug's actual price is currently $64,260, according to the website.

An Amgen spokesperson says, "The price of Blincyto reflects the significant clinical, economic and humanistic value of the product to patients and the health-care system," as well as the price of developing the drug.

The calculator does suggest that some cancer drugs are excellent values. Treanda, a blood cancer treatment from Teva Pharmaceutical, has a value-based price when set to the same parameters of $21,227 a month, significantly higher than its actual price of $7,725.

The need for value-based pricing

Daniel Goldstein, an oncologist at Winship Cancer Institute of Emory University, says the pricing calculator addresses the "unsustainable" pricing of oncology treatments. "Currently, cancer drug prices are not linked to the benefit they provide," he says.

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Patricia Danzon, a professor of health-care management at the University of Pennsylvania's Wharton School, says the calculator is well-designed but not truly market-based because it factors in drug development costs. "That's not how a competitive market works," she says. "In a competitive market, prices reflect the value that the products give to consumers" (Loftus, Wall Street Journal, 6/18).