It is hard to read a newspaper these days without coming across a story about the high and ever increasing cost of drugs. The Wall Street Journal named drug prices the top health story of 2015. Stories about drug prices fall into two general categories. The first are stories about generic and other manufacturers who are not focused on innovation (like Turing Pharmaceuticals and Valeant) but who acquire generic drugs and increase the price dramatically without adding value while also making it impossible for competitors to manufacture the drug by controlling the distribution.
While this problem is real, it is not the focus of this discussion as it may be a short-term problem that can be fixed by regulatory oversight. The second category is drugs that provide a real therapeutic benefit but are perceived to be priced "too high." A corollary of this is a drug that might have a marginal therapeutic benefit but still has a "high" price.
The Associated Press reporting on a Kaiser Family Foundation poll found that making sure that high-cost drugs for chronic conditions, such as HIV, hepatitis, mental illness, and cancer, are affordable for those who need them is the top health care priority, picked by more than three quarters of the public (77 percent). In addition, it is clear that patients are concerned about their out-of-pocket costs, especially when they purchase expensive specialty drugs. Express Scripts, in their Drug Trend Report, estimates that non-adherence costs $337 billion per year. This is a function of insurance design and should be a part of any discussion of drug pricing.
Value Pricing For Drugs
The idea that drugs should be "value priced" is consistent with current trends in American health care like value-based insurance design, the decline of fee for service (quality over quantity), and the move for payers to provide case mix adjusted payments where providers go "at risk" for costs, outcomes, and quality (e.g., Accountable Care Organizations in Medicare). National Health Expenditures show that prescription drug spending in the US was 9.9 percent (of total costs) in 2014 and is expected to increase to 10.1 percent by 2018 and 10.4 percent by 2024.
In 2014 the generic prescription rate was 82 percent and is unlikely to grow dramatically in the next decade. Prescription drug spending in Parts B and D was 14 percent of total Medicare spending in 2014, up from 11 percent in 2010. The Center for Medicare and Medicaid Services (CMS) actuaries believe that prescription drug spending will shift more towards specialty drugs which may result in drug spending growth to be greater than historical trends. Therefore, getting drug pricing "right" through "value pricing" or some other mechanism is an important public policy goal.
If we are to embrace "value pricing," we need to understand what it is and how and when it should be calculated. As a former assistant secretary at the Department of Health and Human Services (HHS) who was responsible for shepherding the inpatient prospective payment system through both the legislative and regulatory processes, CEO of an international health care consulting company that used to produce analyses for a variety of stakeholders, and medical director of a pharmacy benefit management company — I can truly say the "devil is in the details" on value-based pricing. Two recent examples demonstrate this point.
Variance In Value Pricing Estimates
Blinatumomab
In a piece in The Journal of the American Medical Association (JAMA), the authors suggest that they have derived the value-based prices for two classes of biopharmaceuticals, yet there is much behind their estimates that is not transparent. Blinatumomab, a drug used to treat a form of acute lymphoblastic leukemia is purported to cost five times as much as its "value price" as determined by a tool developed by one of the authors. However if one goes to the tool's website it is clear that there is more to the story. The well-designed site has six categories that the user may manipulate; dollars per life year, toxicity discount, novelty multiplier, cost of development, rarity multiplier, and population burden of disease.
As mentioned in the article, the tool assigned a value to a year of life at $120,000, and used this to calculate the benefit of blinatumomab, which also received a 15 percent toxicity discount. There was no allowance for novelty, cost of development, rarity, or population burden of disease. However in approving blinatumomab, the Food and Drug Administration (FDA) wrote in its press release that blinatumomab was the first anti-CD19 drug to receive agency approval and that "recognizing the potential of this novel therapy, the FDA worked proactively with the sponsor under our breakthrough therapy designation program to facilitate the approval of this novel agent."
Given the view of the FDA and similar comments from the European Commission, I increased the novelty score from 1 to 2.8 (on a scale of 1-3), and given the rarity of the disease it is meant to treat I gave it a value half way between 1-3 (or 2). I left the rest of the settings the same. Just making the two simple and obvious adjustments brought the "abacus price" to $70,628/month, which is 10 percent higher than the manufacturer's price and obviously higher than the original abacus price implied in the JAMA article. Even a small difference in the subjective analysis can make a large difference in the estimated "value" of a drug.
PCSK9 Inhibitors
The second example is a review of the two Proprotein Convertase Subtilisin/Kexin Type 9 (PCSK9) Inhibitors published recently. PCSK9 inhibitors are drugs that lower LDL or "bad" cholesterol. The first analysis done by the authors is a classic incremental cost effectiveness analysis where they report costs per quality adjusted life year (QALY) saved. This type of analysis requires a large number of data sources and necessary assumptions to result in a final number.
An example is that the model focuses on so-called MACE events (myocardial infarction, stroke, and cardiovascular death), whereas another model might take into account all events, or other events avoided like coronary artery bypass graft, percutaneous angioplasty which a decreased cholesterol may decrease thereby increasing the quality of life of an individual and lowering the cost/QALY.
Suffice it to say if you make a different set of assumptions you can get a very different answer. This appears to be the case with an analysis presented by the director of the Schaeffer Center at the University of Southern California, who stated that the drugs "are certainly cost effective." There ought to be sufficient detail available to highlight and discuss the differences among various researchers and other stakeholders.
Perhaps more importantly the authors of the PCSK9 review assert a price at which the five-year budget impact would not exceed a growth target of gross domestic product (GDP) plus 1 percent. This standard appears to be only for drugs. This is interesting in a few regards.
First, this type of short-term financial calculation has nothing to do with "value," which refers to the health gains attained by investing in health care interventions and whether those investments are "worth it." The implication is that drugs for common diseases require low prices so they will not exceed some arbitrary budget cap, irrespective of the value they deliver to patients, payers, or society. Society, rather than a specific health plan budget, may benefit greatly from investing in drugs that improve population health and reduce the burden of illness.
This seems to be counter to the concept of a cost effectiveness analysis (i.e., if something is below a threshold, for example $100,000/QALY, it is worthwhile investing in). If the arbitrary budget cap were to be implemented, than new drugs for common diseases like diabetes or congestive heart failure or atherosclerotic cardiovascular disease may be left on the drawing board.
Second, if GDP +1 percent sounds like a familiar number it is because it was the growth allowed in the Clinton Health Plan as well as the growth allowed in physician compensation in Medicare also known as the Sustainable Growth Rate (SGR). Neither one of those was very successful.
Moving Forward With Value Pricing
If we decide that value pricing is the right way to encourage pharmaceutical innovation while ensuring access to innovative drugs for our patients, then there are many policies we can employ. Many of these are outlined in the JAMA Viewpoint article. However, we must agree on what a value price is, how it should be determined, and when should it be determined. The methodology should be transparent and replicable. We should not be arguing about numbers but we should be discussing the implication of various numbers in developing a cost effectiveness analysis.
We need a public conversation about the economic value placed on a year of life, which is underlying all of these analyses. This simply has not been done in the US. Using imported numbers from the World Health Organization or from England may not represent American social values.
In short, we need to move beyond where we are today and have a realistic conversation among all stakeholders, perhaps convened by a neutral third party like the National Academy of Medicine, regarding pharmaceutical pricing. Such a conversation must be willing to acknowledge that a high drug price that saves society money in the long term is not per se bad as well as acknowledging that increasing the price of a generic by over 500 percent may not be a good thing. If we're successful, perhaps next year drug prices will no longer be the top story of the year.
from Health Affairs Blog http://ift.tt/21PaWxE
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