The Food and Drug Administration approved a pancreatic cancer treatment called Rasonque (daraxonrasib) last week. For decades, pancreatic oncology research has often been referred to as the “graveyard of drug development” with a very high clinical trial failure rate. And so, in an area of tremendous unmet need, finally having a product for patients with a meaningful clinical benefit is important. The once-daily oral tablet can extend the lives of advanced pancreatic cancer patients by a median of 13.2 months, compared with 6.7 months for those who received chemotherapy.

But at $480,000 for a year’s worth of treatment, progress in the battle against pancreatic cancer isn’t cheap. The media has described the price tag as the new normal , I can recall a time not so long ago when cancer drugs priced at $100,000 shocked the world.

As we think about the future, it’s inevitable that other oncology medicines such as Rasonque will launch at similar or even higher prices. In the long run, how sustainable is this?

A study published last year suggested that cancer drugs in the United States, Germany and Switzerland were on average approximately three times more expensive compared to non-cancer drugs. This indicates what the authors termed a “cancer premium” that isn’t explained by differences in clinical effectiveness between cancer and non-oncology drugs. The researchers went on to assert that this premium threatens sustainability in the healthcare systems.

This raises questions not only about affordability for health insurers and patients, but also opportunity costs. If we’re paying this much for Rasonque and others like it, how is this limiting our ability as a society to pay for other medical technologies and services without significantly raising premiums or increasing government subsidies to patients and reinsurance to payers? Or, how much is healthcare spending, already on a path to soon reach 20% of the nation’s gross domestic product, crowding out expenditures on other public goods, such as education, housing and infrastructure?

Who Will Pay for Rasonque?

It should be noted that practically no patient will pay $480,000 for an annual supply of Rasonque pills. Most people who are indicated for the drug and want it will be able to access it through their health insurance, though coverage parameters, including how much patients must pay out-of-pocket, will vary between the public and private sectors and across carriers within each sector.

Cancer is officially a protected drug category in Medicare’s outpatient program called Part D, which means that “all or substantially all” medicines must be covered for elderly and certain disabled patients. Still, conditions of reimbursement such as prior authorization will apply as well as patient cost-sharing. Rules on such conditions will differ across plans. The Inflation Reduction Act’s redesign of Part D, capping out-of-pocket costs for patients at $2,100 annually, will help to mitigate the financial burden for Medicare beneficiaries.

The state-federal Medicaid program for low-resourced individuals is expected to cover Rasonque at minimal charges to patients, though there will likely be extensive use of utilization management tools to limit states’ financial exposure.

In the employer-sponsored market, commercial payers reimburse the vast majority of cancer medications, particularly breakthroughs like Rasonque in a disease for which there are few treatment alternatives available. At the same time, insurers impose conditions of reimbursement such as prior authorization and sometimes significant levels of patient cost-sharing. And it’s these co-payments and co-insurance along with deductibles that constitute an out-of-pocket cost burden for patients that can be “ financially toxic ." Together with hospital and other costs, it may cause personal bankruptcy or take a substantial bite out of people’s discretionary income.

The medicine’s manufacturer, Revolution Medicines, promises to help defray costs for uninsured patients and those with substantial cost-sharing. However, such patient assistance programs aren’t permitted in Medicare or Medicaid.

Stakeholders Hold Differing Views on Price and Value

In the U.S. context, drug manufacturers establish list and negotiate net prices with payers. At the point of launch, there is no central entity that determines a therapeutic’s net price based on clinical benefit or places limits on price-setting. Accordingly, for drugs like Rasonque, the net price represents what the market will bear.

Whether this willingness-to-pay price conforms to the conditions of an optimally functioning market is the subject of a decadeslong debate. As described by numerous esteemed economists, starting with Kenneth Arrow in 1963, healthcare is oddly configured with multiple features that violate typical assumptions underlying a perfectly competitive market. These include a relatively high degree of uncertainty, asymmetrical information between actors on the supply and demand sides, barriers to market entry and third-party insurance that shields patients from actual costs of treatment.

Drug makers, payers, patients and doctors will each have their own perspectives on the prices of medicines but also value.

For insurers, key factors include whether viable treatment alternatives exist and if the benefits conferred by prescription drugs are worth the price as reflected, for example, in their cost-effectiveness.

Patients and physicians expand the notion of value beyond the proxy concept, cost-effectiveness. In particular, the “ value flower ” broadens the concept to include, among other considerations, severity of illness, hope and scientific research spillovers.

The pharmaceutical industry tends to defend high prices based on supposed alignment with value, even when it isn’t clear how the latter is calculated. Alternatively, it may point to recoupment of investment line to justify its price setting. There’s no denying the pharmaceutical industry invests a tremendous amount in research and development. And to be a going concern drug companies must have sufficient revenue to recoup their R&D costs.

Taken together, we observe the divergence of stakeholder views on price and value and ultimately what’s sustainable. Nevertheless, there may be some room for consensus around what is and what isn’t justifiable, provided the debate is framed in terms of societal opportunity costs, rather than narrowly on, say, profitability and margins in the pharmaceutical ecosystem.

At $39,800 a month, paying for a treatment like Rasonque introduces opportunity costs and inevitable tradeoffs. Every dollar spent on the drug is one that can’t be allocated to prenatal care, mental health services or other social goods like education, housing and infrastructure.

More than 50 years ago, the prestigious health economist, Victor Fuchs, wrote Who Shall Live? Health, Economics and Social Choice . In it, he argued that societies must make difficult choices because healthcare resources are finite. He maintained that while health is invaluable, the pursuit of it is constrained by scarce resources. Fuchs worried about over-investing in high-tech, late-stage interventions at the expense of population-level health.

There aren’t any easy answers to questions around price, value and opportunity costs. But it’s a discussion America ought to have among all stakeholders with vested interests in public health and societal goods more broadly. Having a transparent and reasoned public process to arrive at decisions on sustainable prices that align with value seems more palatable than the haphazard way we approach this topic currently.