2871_ICER_BlogPost-1The industry’s current value and payment system is being scrutinized as pharma companies continue to expand their traditional, treatment-based drug discovery models to include potential cures. The Institute for Clinical and Economic Review (ICER) is collaborating with the U.K.’s National Institute for Health and Care Excellence (NICE) and the Canadian Agency for Drugs and Technologies in Health to address some of the perceived challenges in pharmaceutical valuation methodologies, namely how the industry should be evaluating high-cost, but potentially curative, treatments.

While these challenges have long been visible to pharma industry insiders, the emergence of more cell and gene therapies has brought these methodological issues to the forefront of the “value of drugs” discussion. As part of its “Valuing a Cure” project, ICER has posed three questions to industry stakeholders, requesting input on or before Feb. 20. The organization’s request for guidance is an opportunity for pharma companies to collect their thoughts on the value of a cure and weigh in on the discussion.

Understanding ICER’s Request for Comments

ICER question No. 1: How should value-based prices for potential cures reflect substantial uncertainty regarding clinical safety and effectiveness due to limitations in study design, outcome measures, and the size and duration of clinical trials?

This question alludes to one of the major challenges with any pharmacoeconomic analysis that’s based on the concept of quality-adjusted life year (QALY) and that aims to value a drug by the number of years it extends life, adjusted for the degree of health or debilitation experienced by the patient. For example, NICE is known to look negatively on treatments that cost more than £20,000 to £30,000 per QALY. While many find the QALY framework attractive in theory, the practical challenge has always been that neither of its dimensions (years of life extended or quality of those years) can be accurately measured at all—and certainly not at the time of a new drug’s initial approval. 

ICER question No. 2: How should value-based prices for potential cures reflect uncertainty regarding inclusion of additional elements of value that may be important for potential cures, but which are not part of standard cost-effectiveness methods?

A good example of this challenge can be found in ICER’s own evaluation of Spark Therapeutics’ gene therapy Luxtrna, which found that prescribing the $850,000 cure for vision loss to a 15-year-old patient wouldn’t be cost-effective even at $500,000 per QALY. Shouldn’t it be a bargain to pay this cost for a patient who will likely live for at least 50 more years? For example, the ICER report looks extensively at the cost to care for the blind patient vs. cure them with Luxtrna, but if we think about the economic contribution of a “normal” worker at the per-capita GDP of $60,000 per year for 30 years, it starts to sound like a bargain even if we value the restoration of the patient’s sight at $0, which, of course, we shouldn’t.

ICER question No. 3: How should value-based prices for potential cures reflect extreme magnitudes of lifetime health gains and cost offsets that are far beyond those generated by traditional therapies?

In other words, if we find a treatment that really is worth $2 million, how in the world do we pay for it? Can any healthcare system afford to pay such a high cost for every patient? Additionally, how do we handle problems created where the value derives from cost offsets that accrue to someone other than the payer for a particular treatment? In the U.S., for example, treating a disease early in life might be socially optimal, but the savings might accrue to Medicare when the cost gets paid by commercial insurers, as we saw with hepatitis C.

How Do We Determine the Value of Innovative Pharmaceuticals?

Each of the issues raised by ICER’s questions represent fundamental challenges with the use of QALY as a pharmacoeconomic evaluation framework. Although creating new (and probably more complex) theoretical and empirical models may address some of these issues, any model likely will continue to be stymied by the lack of long-term outcome data for newly launched products. As a patient, however, I take issue with the QALY system being used by a health insurer (as is customary in the U.K.) because it’s the opposite of how I’d like insurance to behave. Although in the U.S., my health insurance usually pays for inexpensive, preventative care (in my case, annual physical and cholesterol screening exams), I wouldn’t mind paying these costs out of pocket (especially if it would lower my high premium). What I really want from my health insurance is a service that protects me against the risk of a financially ruinous condition such as cancer or a rare disease that might cost hundreds of thousands of dollars to treat.

My reaction to debates about the relative merits of the U.S. vs. U.K. insurance systems has always been that the U.K.’s system isn’t really insurance. Instead, it’s more of a payment plan combined with redistributive taxation. It would be upsetting to reach old age without any major health complications to find that my insurer is only willing to pay $30,000 per year to keep me alive after a lifetime of paying high premiums into the system (and just getting cheap preventative care in return). Much has been made of the high cost of end-of-life care for health insurers, but I bet most auto insurers’ costs occur after accidents where the car is a total loss, too.

I believe that a market-driven model for determining the value of something (for example, by asking, “What are people willing to pay?”) will always be a superior way to value complicated goods, and pharmaceuticals are no exception to this. In such a market, not everyone needs to participate, but it does need to be large enough to meaningfully capture the average sentiment of the population. The private U.S. health insurance market seems likely to become this type of market in the world today, however, our insurance insulates us from (and often hides) the financial consequences of our drug usage choices. To allow any market to accurately set prices, purchasers (patients and organizations that purchase on their behalf, like self-insured companies) at a minimum need to know what they’re paying for drugs—a nearly impossible request today, even for savvy patients.

What does this mean for pharma? While the current system of opaque pricing and complex rebate structures may have worked well in the past, I don’t believe that it serves pharma well now. As we bring new products to market, we should be more transparent about what we’re actually charging patients (that is, the actual net cost) for the clinical benefits that we provide. Once we do this, we will also need to talk about why we believe such a price is justified. This will require our industry to clearly articulate a position on how drug value should be measured, which, for many of the reasons above, will probably conflict with the one promoted by ICER. As an industry, we have avoided this debate for too long and can only harm ourselves further by avoiding it now. The pressure to do so will only continue to increase as the healthcare costs borne by patients continue to rise and thus push the discussion of how to value pharmaceutical innovation into public discourse.

Pharma colleagues, please consider sending your comments to ICER by Feb. 20, and think about how you’ll weave the price of your next clinical innovation into your messaging strategy.


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Topics: Pharma, cell and gene therapy, Joe Stevens, pharma drug pricing, potentially curative treatments, value of a cure, price of clinical innovation, rebate structures