The New War on (Overpriced) Drugs


UNLESS YOU HAVE multiple myeloma, a rare and vicious cancer of the blood, chances are you haven’t heard of Revlimid. The immunomodulatory drug slows the growth of new blood vessels, and it’s a product of the kind of ingenuity and daring that once made the pharmaceutical industry among the most respected in America. It’s also a handy stand-in for everything that’s wrong with the business today.

In the early 1990s, researchers at Boston Children’s Hospital stumbled on an old sedative that appeared to slow the progress of myeloma. The drug, thalidomide, was infamous. It had been prescribed widely for morning sickness in the 1950s, but caused thousands of horrific birth defects. Still, nothing had ever been as effective against multiple myeloma, so a biotechnology company called Celgene took a risk and spent millions of dollars developing an analogue of the compound, transforming thalidomide into a more potent cancer drug.

It worked: When the FDA approved Revlimid to treat meyloma in 2006, it revolutionized the cancer's treatment. Average survival time jumped from three or four years in the late ’90s to almost a decade today. “There’s not one other disease where you can say we tripled survival in that period of time,” says Mohamad Hussein, Celgene’s head of scientific affairs. Through calculated risk and dedicated bench work, Celgene had turned poison into gold.

The story of Revlimid’s development is unique, even uplifting. But the story of what it costs is all too familiar. In the past decade, the drug’s price jumped from $78,000 a year to $156,000. Last year, the median myeloma patient on Medicare—a person supposedly shielded from extortionate drug prices—paid $11,538 out of pocket each year for the medication. (A majority of American families have less than $5,000 in savings.)

Revlimid has produced at least $20 billion in revenues since its release, but Celgene, and all pharmaceutical companies, say they need high prices to continue developing lifesaving medications. “You get what you pay for,” Hussein says.

The 25-milligram pill encapsulates everything that’s great and everything that’s terrible about the US pharmaceutical industry. In the past five years, the price of brand-name prescription drugs has doubled; cancer drugs, specifically, have gone up by a multiple of six since 2000.

Several promising new myeloma drugs have recently been released, including a new and improved follow-up treatment to Revlimid called Pomalyst. Each drug costs more than $150,000, and Pomalyst comes in over $195,000. “This is not a sustainable model,” says Brian Bolwell, chairman of the Taussig Cancer Institute at the Cleveland Clinic.

Many doctors and patients across the country would agree. So, at a moment when Congress and the Trump administration are grappling with revamping the entire health care economy, we should ask ourselves: How much should a drug actually cost, anyway?


It’s a strangely subversive question and one that Steve Pearson, an unassuming internist turned Harvard lecturer turned nonprofit chief, thinks he can answer. Pearson is one of the few people in this country who’ve had any luck getting the prices for individual drugs under control. The nonprofit he founded, the Institute for Clinical and Economic Review (known as ICER), has one purpose—to figure out whether a new drug is worth the price tag or if Big Pharma is taking us for a ride.

For the most part, Pearson says, Americans have no idea what they should be paying for medication. We don’t how much it costs to actually develop a drug; the FDA doesn’t require comparative effectiveness studies, so we don’t know if new drugs work better than existing competitors; and we have little information about how much other consumers are paying for the same products. “Patients in America are getting great value for drugs—and we're getting ripped off,” Pearson says. “The problem is we’ve had little way of knowing when it's one or the other.”

President Donald Trump has said that the pharmaceutical industry is “getting away with murder” and that he wants to let Medicare negotiate with drug companies over the prices we pay—something that was forbidden in 2003, part of a compromise with the politically potent industry to get the Medicare drug expansion plan passed. (Since 1998, Big Pharma has spent more on lobbying than any other industry.)

In The Art of the Deal, Trump says that you have to “know when to walk away from the table.” But Medicare—which covers some 57 million people—essentially can’t decline any drug the FDA approves, at least for serious diseases like cancer. It can’t walk away from the table. Furthermore, the agency doesn’t have any more comparative data than you or I do. When one party in a deal knows more about the goods than the other, economists call itinformation asymmetry. It’s a classic recipe for market failure and, as any seasoned negotiator knows, a great way to get a bad deal.

Pearson, with ICER, has taken it upon himself to fix this information imbalance, to generate the missing data and calculate a “fair price” for drugs. The team’s efforts involve a forensic approach to dozens of scientific studies and a Vulcan-eyed look at how we value human life and decide to allocate resources. It is straightforward yet radical work—a missing puzzle piece in the effort to solve our drug-pricing crisis.

The Centers for Medicare and Medicaid Services recognized this last spring, when they floated the idea of using ICER’s calculations if Congress ever let them negotiate prices. Pharma-backed groups acknowledged this when they launched a blitz to discredit the group last year. And so far, Pearson’s method has successfully checked the prices of a handful of drugs—something very few people can say they’ve done.

But as sensible as the exercise may look in a PowerPoint presentation, some of the people Pearson is trying to help aren’t buying in. “The new drugs are awesome,” says Matt Goldman, a myeloma patient in Long Beach, California, but if ICER were to decide his meds are overpriced, “our insurance company is going to read this and they’re going to start denying benefits—these are life and death decisions.”

Nick Van Dyk, a patient who credits Revlimid with keeping him alive, is more succinct. “I’m talking to you instead of pushing up dirt because of Big Pharma,” he says. “The ICER guy is a smug, rotten scumbag.”

Cold-Blooded Math

Figuring out if a drug is priced fairly is not a simple process. One of the first things you have to do is put a value on human life.

Kind of. A quality-adjusted life year, or QALY (pronounced “kwaly”), is the metric that health economists use to measure the value of medical treatments over time. One QALY is a year of perfect health thanks to a med; zero QALYs means you’re dead. Three extra months of life in great health, Pearson says, gets a higher QALY value than three months with terrible side effects.

So what’s a year of feeling healthy worth? Based on data from the World Health Organization and other sources, ICER puts the value of a quality-adjusted life year in the United States at between $100,000 and $150,000. (If it unnerves you that the health care system has decided a year of your health is worth the price of a tacky speedboat, know that QALYs are used everywhere life is taken into consideration; the Department of Transportation uses them when it decides how much it should spend on expensive safety features, like extra lanes or guardrails along freeways.)

Any drug that provides significant health benefits at under $100,000 per QALY is golden and ICER rates it as “high value.” Ones that cost more than $150,000 per QALY get “low value” or, at best, “intermediate value” if the drug provides a legitimate benefit to patients.

Cold-blooded as they may be, QALYs aren’t controversial for health economists, but the very idea of quantifying life upsets plenty of people—the approach carries a whiff of “death panels,” after all. Still, Pearson says, controversy is no reason to shy away from a useful metric. “The QALY just helps us compare apples to apples when we want to consider the gains we make with good new treatments,” he says.

For Pearson, paying too much for drugs matters not just because pharmaceuticals eat up a growing chunk of our total health spending—17 percent at last check—but because the money we spend on overpriced pills is money we could spend better somewhere else. “Health is a very important—perhaps the most important goal for us as individuals, and for our society,” Pearson says. “But it’s not the only goal. We also want good jobs, great schools, a safe environment.”

The money you spend on overpriced drugs, he argues, is money that doesn’t go to your kid’s school or the ambulance driver or fire department. “There are choices within the health care system: Should we get this machine or pay another doctor?” he says. “Then, step back and it’s: Another hospital or 10,000 more teachers?”

Pearson’s office in ICER’s downtown Boston headquarters is spare and unlived-in when we meet in August. He spends most of his time in DC; his family lives there, and he’s a visiting scientist at the National Institutes of Health. But Boston is ICER’s home, he says, across the river from Harvard, where Pearson is a lecturer and where he founded the institute back in 2007.

In conversation, Pearson is even-keeled and reassuring—like a doctor walking you through a mixed prognosis. Goateed and with tortoiseshell, geek-chic glasses, he’s wearing cufflinks embossed with the crest of the Royal College of Physicians, where he’s an honorary fellow. (His CV is a grab bag of elite institutions and includes a Stanford undergraduate degree, a master’s from Harvard, and an MD from UC San Francisco.) With his staff of 24 doctors and policy wonks, he aims to put out about nine reports a year, covering dozens of treatments.