Promises and Pitfalls in Calculating Drug Value

Jun 06, 2016

There’s a stampede to relate prices to broader health benefits, but little consensus on how to do so, writes Jill Wechsler.

Therapies able to document to payers and patients that they can extend health, save lives, and slow the growth in healthcare spending should be worth a lot, while treatments lacking clinical or economic benefits should charge less. That’s the logic behind value-based purchasing and contracting for prescription drugs, a more palatable strategy to industry charging whatever the market will bear.  

The hope of biopharma companies is that insurers and health plans will ante up for new miracle drugs able to document high-value life-saving benefits. Payers have covered the stiff prices on many orphan drugs and cancer therapies because they treat small patient populations. But there’s been considerable push-back on new cures for hepatitis beneficial to millions of individuals, and for life-saving drugs with very high price tags. A real test will be calculating the value of new cellular therapies, where a one-time treatment may cure a debilitating condition, but at a cost up to $1 million per patient.

Unfortunately, there’s no clear formula for assessing medical gains, particularly over time, and much debate over where and how to calculate the numbers. Medical societies are developing “value frameworks” to support clinical decision-making, but differ in methods and measures.   The National Pharmaceutical Council seeks some uniformity in approaches through development of “Guiding Practices for Patient-Centered Value Assessment Frameworks” (http://bit.ly/1WZP29L).

Steven Pearson’s Institute for Clinical and Economic Review (ICER) has become the pace-setter for assessing the value and cost-effectiveness of new medicines, as seen in ICER reports evaluating cancer therapies and PCSK9 inhibitors to control high cholesterol; future analyses are planned for treatments for multiple sclerosis, psoriasis, and non-small cell lung cancer.

An ICER assessment of  multiple myeloma therapies adds to the widening debate over the value of new cancer treatments and when and where life-saving benefits are worth the steep prices. ICER says that most of the new myeloma therapies are not worth current prices and some should be discounted more than 75% to meet value targets. That conclusion fits the wave of reports documenting ever-rising prices for cancer therapies and that high spending on cancer drugs in the US limits health gains compared to other countries.

One might think that the new treatments for hepatitis C, which can cure this serious disease much more effectively than previous medicines and with fewer side effects, would receive high marks for value. However, an ICER assessment in early 2015 found prices far too high for these medicines, despite evidence of “clinical superiority” to existing treatments. ICER advisors recommended strong controls to limit prescribing to patients with advanced liver disease. Utilization has expanded as benefits have become more obvious, and as competition has pushed down rates.

CMS strategies

Drug value assessment fits broader government efforts to shift Medicare and other federal health programs from pay-for-volume to pay-for-value models. The aim is to boost fees to doctors and provider organizations offering quality care that keeps individuals out of hospitals and emergency rooms and extends productivity and life.

Along these lines, the Centers for Medicare and Medicaid Services (CMS) seeks to encourage more use of high-value medicines by testing new reimbursement strategies for Medicare Part B drugs dispensed by clinics and doctors’ offices. The proposal, which has ignited a fierce debate over rates and value, would alter current Part B policies that tend to pay physicians more for prescribing pricier drugs. Oncologists contend that the change would penalize them unfairly, and patient advocates and pharma companies fear it would curb access to newer, more costly therapies. Congressional leaders have urged CMS to retract or change the plan, and after receiving some 800 comments, agency leaders say they’ll take a fresh look.

CMS also proposes to evaluate four other “value-based” Part B pricing methods that may not please industry. These include setting a standard “reference price” based on the average price of a group of drugs; indication-based pricing that varies reimbursement according to a drug’s effectiveness in specific conditions; negotiating risk-sharing agreements with manufacturers that link outcomes to price adjustments; and reducing or eliminating patient cost-sharing to encourage use of high-value drugs.

Rebates and discounts

If pharma companies want to shift the drug pricing debate to “value,” they may have to provide greater transparency in prices after discounts and rebates. Manufacturers have long complained that drug cost analyses based on list prices overstate real spending, but insist on keeping negotiated rates secret for competitive reasons.
More transparency should help demonstrate that assessments based on net prices bolster drug value claims, as indicated by the April report on drug spending from the IMS Institute for Healthcare Informatics. It found that while overall outlays on prescription medicines in the US rose 8.5% from 2014 to 2015, and brand list prices increased 12.4%, there was only a 2.8% rise in average net prices for brand-name drugs already on the market.
That paltry increase reflects more price competition among brands and aggressive rate negotiating by insurers and pharmacy benefit managers (PBMs).

Most of the popular proposals to halt pharma “price gouging” do little to promote value. Both Donald Trump and Hillary  Clinton support direct price negotiations by Medicare, even though that approach lacks teeth because Part D plans cannot drop important medicines from their commerical plans’ formularies. PBMs have control over formularies, but maintain they will provide better coverage and access to medicines that can demonstrate value to patients and to health plans.

Calculating the value of drugs is challenging and often subjective due to lack of consensus on what to measure, what makes a drug “novel,” and how to balance benefits and harms. Every analyst has individual preferences, and “affordability” can be hard to compare.

The Biotechnology Innovation Organization is airing an ad promoting the importance of breakthrough medicines in extending lives. “How do we place a value on these?” it asks. There are many different answers.

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