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Julie Grabow, an oncologist at the Fred Hutchinson Cancer Center in Seattle, recently prescribed an exciting new therapy for a 60-year-old woman with metastatic breast cancer. Three-and-a-half years into her battle against the disease, the patient had already exhausted three different anti-estrogen therapies, each of which only put a temporary check on the spreading tumors.

The newly prescribed drug, Novartis’ Afinitor, is one of the recently approved targeted therapies that have generated a lot of excitement among cancer patients and oncologists in recent years. Drugs that target just the cancer cells promise the same or better results as toxic chemotherapy, but with far fewer side effects.

There was a catch, though. Like many of the latest cancer drugs, Novartis is charging exorbitant amounts for the treatment – in this case, $10,000 per month. That quickly put an end to that possibility for Grabow’s patient. Her monthly co-payment, even after her insurance company agreed to pay its share of the off-label use the drug (the Food and Drug Administration has only approved Afinitor for kidney and pancreatic cancer, not breast cancer), was $2,900.

“She can’t afford this, even though it’s potentially a less toxic and potentially equally effective regimen,” Grabow said. “Chemo will help her, and it’s a reasonable choice. But that choice is 100 percent driven by economics.”

Over the past year, official Washington and candidates on the campaign trail have locked horns over the best way to curb rising health insurance costs. The public has been bombarded with dueling slogans – Republicans vowing to fight the “death panels” and “rationing” of Obamacare while Democrats promise “guaranteed access” and “affordability” with the Affordable Care Act.

But an economic drama that neither side wants to confront is playing itself out in cancer wards and oncologists’ offices across the country. Unaffordable new drugs, even when they’re covered by insurance, are being rationed by price as patients, doctors and hospital officials struggle with what is likely to be the most pressing problem for the nation’s health care system over the next decade: how to pay for the spectacular rise in the cost of cancer care, especially drugs and diagnostic tests.

“In the real world of private practice where most care is delivered, it would be a mistake to say rising costs haven’t affected care,” said Eric Nadler, a head, neck and lung cancer specialist at Baylor University Medical Center. A recent survey published in Health Affairs found a stunning 84 percent of oncologists say their patients’ out-of-pocket spending influences treatment recommendations.

The growing cost of cancer care will impose its greatest burden on the nation’s Medicare system, since 55 percent of all cancers are diagnosed in individuals 65 or older. A recent study by the National Cancer Institute projected the cost of treating the 29 most common cancers in men and women will rise 27 percent by 2020, even though incidence of the disease is going down due to successful public health campaigns like the war on smoking.

That estimate is based on a relatively static cost of care per case. If costs increase just 2 percent more a year than previous trends in the first and last years of care, the study said, then costs would soar to $173 billion, a 39 percent increase. The study pointed out that its projections were based on 2006 Medicare claims data, which predated the development of most of the latest targeted therapies.

There’s no doubt that there will be many new therapies for cancer coming to market in the years ahead. The nation’s $150 billion public investment in understanding the biology of cancer – the science side of the War on Cancer launched by President Richard Nixon in 1971 – is beginning to bear fruit.

The pharmaceutical industry, which draws on that publicly funded science to develop drug candidates, now has 887 new cancer drugs in development, over 30 percent of its total portfolio of new drug candidates, according to the Pharmaceutical Research and Manufacturers of America, the industry trade group. That’s up from 646 or 26 percent of the total devoted to cancer in 2006.

The industry is pouring increased research and development resources in cancer therapeutics in hopes that it will replace the revenue being lost from the expiration of patents on blockbusters like Lipitor. However, since there are fewer cancer patients than there are people with chronic conditions like elevated cholesterol, and many don’t live very long, the prices needed to support the industry’s current size and structure, and profits must be substantially higher.

“They’re trying to maximize profits given their incentives,” said Peter Neumann, director of the Center for the Evaluation of Value and Risk in Health at Tufts Medical Center, which receives funding from the drug industry. Possible solutions, he said, include letting Medicare set prices based on the medical value of adding extra months to life. That’s a variation on Great Britain’s cost-effectiveness model, which has been roundly condemned by most U.S. politicians and the press.

The other path is to turn to a bundled payment for every for every episode of cancer care and let the health care delivery organizations and private insurers sort it out. (Bundled payments account for all medical services associated with a given episode of care—doctors, nurses, technicians, etc.) That approach, in essence, would force the marketplace to execute the rationing.

“Bundled payment isn’t a panacea, but it does create incentives,” Neumann said. Some private insurers are experimenting with bundled payments for cancer care.

A quick review of the new cancer drugs approved by the Food and Drug Administration last year reveals how fast drug prices are rising. Most of the older chemotherapy regimens for cancer, some of which have been around since the 1950s, are generic and relatively inexpensive. But among the six new drugs approved in 2011, the cheapest – Johnson & Johnson’s Zytiga for advanced prostate cancer – cost $44,000 a year. The drug extended life by an average of less than 5 months to 16 months, according to a company spokesperson.

At the high end of the spectrum was Adcetris, a biotech product from Seattle Genetics that treats recurrences of Hodgkin’s lymphoma. A highly curable disease when initially treated in the 8,830 mostly middle-aged patients who get the disease every year, it is usually fatal if a drug-resistant strain emerges later in life. Adcetris, the first new treatment to come along since 1977, kept the cancer in check for nearly 7 months in the single small trial that led to its quick FDA approval. It’s price tag: $216,000 for a full course of treatment.

Skin cancer specialists had a lot to cheer about in 2011 with two new therapies coming on the market for metastatic melanoma, which is fatal within one year for about 75 percent of the 10,000 people stricken each year. But Roche/Genentech’s Zelboraf cost $61,400 a year and Bristol-Myers Squibb’s Yervoy, which nearly doubled the one-year survival rate from 25 percent to 46 percent, cost $120,000 for a four-month course of treatment.

“We price our medicines based on a number of factors including the value they deliver to patients and the scientific innovation they represent,” said Sarah Koenig, a spokeswoman for Bristol-Myers. “We have one of the most robust patient assistance programs for cancer patients in the industry.”

Most drug companies have patient assistance programs for poor or struggling patients, but many only come into play if patients are poor or families have exhausted their savings. And since many of the latest therapies, like the older chemotherapies they are replacing or supplementing, extend life for brief periods of time, patients wind up weighing whether they want to deplete their children’s inheritances for a couple extra months of being very, very sick.

A study released at last June’s annual conference of the American Society of Clinical Oncology, which represents the nation’s 25,000 oncologists, revealed that patients with co-payments over $500 a month were four times more likely to refuse treatment than those whose co-payments were under $100 a month. “The price of drugs can’t be set so outrageously high,” study author Lee Schwartzberg told Reuters. Schwartzberg is the chief medical officer at Acorn Research, which conducted the study.

“All stake holders have to get together and compromise to translate this great science into great patient care without breaking the bank.”