A recent study published on Oncotarget found that the cost of cancer drugs varies globally. While the U.S. possessed the most expensive cancer drugs, it was middle income countries such as China and India that saw the lowest affordability in cancer drugs. The study reached this conclusion by converting international drug prices using Purchasing Power Parity (PPP) and comparing them to each country’s average monthly income. PPP is a metric used to gauge the standards of living between countries by comparing each country’s ability to buy a “basket of goods” with their currency. The study made some assumptions that may be worth revisiting, most notably: each country’s patients pay full retail price for cancer drugs, the information captured is just a snapshot, and that prices do not vary within each country.
Study Methodology and Overview
The study was conducted by taking a sample of eight cancer drugs accessible in all target markets – where the lowest listed retail price of each country’s drug was used as the baseline price. The study then converted the drug prices with three different methods: FX conversion, PPP conversion, and PPP conversion vs. monthly income. Using straight FX conversions, the group found that U.S. has the highest dollar price amount compared to other countries. The PPP price conversion resulted in higher costs associated with cancer drugs in India, China, and South Africa. The final comparison between PPP price and monthly income found that the monthly income of certain countries, most notably India, was far below the price of the drug, meaning it was inaccessible for most of the population. The lynchpin of the analysis is focused on the original retail price of the drug – which might not necessarily be the best metric.
ASSUMPTION 1: Full Retail Price for Cancer Drugs
One of the largest assumptions in the study was that all consumers pay full retail price for cancer drugs in their country. While that fact may be true in countries with heavily subsidized healthcare systems such as the UK or Australia, the opposite is true in countries such as the U.S. The U.S. has a system of private and government healthcare insurance, which covers a portion of the cost associated with medication. This makes the U.S. price greatly inflated in the study, especially when comparing what is affordable to the average consumer. According to a study done by the Center of Disease Control, only 10.4% of people under 65 years old are uninsured in the U.S, which means the vast majority of people in the U.S. are paying something other than retail price on cancer medication. While it may be true that some insurance may not cover cancer medication or has a minute impact on the price of the drug, the potential deviation from retail price cannot be ignored. When making the comparison of what the average consumer can afford, it is best to make use a baseline price that the average consumer pays.
ASSUMPTION 2: The Future is Malleable
It’s also important to realize that the study captures a snapshot of what middle income countries are paying today – the future could paint a very different picture. In countries such as India or China, the government plays a huge role in managing the price of medicine. Both the Chinese and Indian government have been taking a more active role in making medication more affordable, in fact, China recently slashed the prices of a number of drugs by as much as 70% in July 2017. While the argument about patented cancer medication may be true now, the future could be different if the price of medicine continues to fall or if the country’s GDP rises. With the rapid expansion of both China and India, it is not unforeseeable for the country’s to see a dramatic rise in GDP in the near future, which may bring cancer drug prices more in line with the rest of high-income countries (UK, Israel, and Australia), but not America, which is the only high-income country that has such stratospheric retail drug prices.
ASSUMPTION 3: Differences in Drug Price Intra-Country
Another large assumption the study made was that drug prices would be uniform throughout a country, and it did this by taking only the lowest listed retail price for the drug. This is incorrect because the price discrepancies of the same cancer drug can be tremendous within a country and taking just the lowest price of a drug is not indicative of the whole picture. An example of tremendous price variance can be seen in the price of bortezomib in India, which has a price variance of over 35% for a 2mg dose. Taking just the lowest number would be ignoring the huge pricing inefficiencies and maximum price range for the drug – it could be possible that the pricing problem for middle-income country could be even more intense than reported. On the other hand, in many high income countries such as the UK and Australia, the price of drugs is much more tightly regulated, with the price difference within the country being under 3% for most of the drugs researched in the study.
The Gap in Global Cancer Drug Affordability may be even Larger
The assumption that the price paid for cancer medication is retail price and uniform within the country are huge. Not all consumers in the studied countries pay full retail price, and conducting the study in the manner greatly exacerbates the price of medicine in the U.S. When over 90% of citizens are paying a non-retail price, using the retail price for research may not be the most accurate choice. The second assumption that cancer medication prices are uniform within countries is incorrect – middle-income countries saw a huge variance in medication prices, as high as an increase of 35%. On the other hand, high-income countries had a very tight band of medicine prices with a variance of under 3%. Simply using the lowest listed price ignores the huge price variance in middle-income countries, which means the actual gap in affordability can be much more extreme than predicted.