Is the price right? Paying for value today to get more value tomorrow

Abstract

Background: Contemporary debates about drug pricing feature several widely held misconceptions, including the relationship between incentives and innovation, the proportion of total healthcare spending on pharmaceuticals, and whether the economic evaluation of a medicine can be influenced by things other than clinical efficacy.

Main body: All citizens should have access to timely, equitable, and cost-effective care covered by public funds, private insurance, or a combination of both. Better managing the collective burden of diseases borne by today's and future generations depends in part on developing better technologies, including better medicines. As in any innovative industry, the expectation of adequate financial returns incentivizes innovators and their investors to develop new medicines. Estimating expected returns requires that they forecast revenues, based on the future price trajectory and volume of use over time. How market participants decide what price to set or accept can be complicated, and some observers and stakeholders want to confirm whether the net prices society pays for novel medicines, whether as a reward for past innovation or an incentive for future innovation, are commensurate with those medicines' incremental value. But we must also ask "value to whom?"; medicines not only bring immediate clinical benefits to patients treated today, but also can provide a broad spectrum of short- and long-term benefits to patients, their families, and society. Spending across all facets of healthcare has grown over the last 25 years, but both inpatient and outpatient spending has outpaced drug spending growth even as our drug armamentarium is constantly improving with safer and more effective medicines. In large part, this is because, unlike hospitals, drugs typically go generic, thus making room in our budgets for new and better ones, even as they often keep patients out of hospitals, driving further savings.

Conclusion: A thorough evaluation of drug spending and value can help to promote a better allocation of healthcare resources for both the healthy and the sick, both of whom must pay for healthcare. Taking a holistic approach to assessing drug value makes it clear that a branded drug's value to a patient is often only a small fraction of the drug's total value to society. Societal value merits consideration when determining whether and how to make a medicine affordable and accessible to patients: a drug that is worth its price to society should not be rendered inaccessible to ill patients by imposing high out-of-pocket costs or restricting coverage based on narrow health technology assessments (HTAs). Furthermore, recognizing the total societal cost of un- or undertreated conditions is crucial to gaining a thorough understanding of what guides the biomedical innovation ecosystem to create value for society. It would be unwise to discourage the development of new solutions without first appreciating the cost of leaving the problems unsolved.

Keywords: Cost-effectiveness; Drug; Health technology assessment; Inflation reduction act; Medicine; Pricing; Value.

Fig. 1

Per capita drug and health spending in real PPP 2020$, 1995–2018. Source: IQVIA Institute for Human Data Science [11]

Fig. 2

R&D success rates in oncology by therapy area, 2010–2022. Source: IQVIA Institute for Human Data Science [17]

Fig. 3

Source: Modified ISPOR Value Flower (modified from Neumann et al. [44], graphic borrowed with permission from No Patient Left Behind)

Fig. 4

The impact of including broader elements of value on the incremental cost-effectiveness ratio. Source: Modified from Ito et al. [45]. Ito and colleagues estimated the cost-effectiveness of a hypothetical treatment for Alzheimer’s disease that delays progression to dementia for patients with mild cognitive impairment [45]. The ICER varied depending on whether the model included factors beyond a patient’s own health. When caregiver costs (e.g., caregiver time caring for the patient or work lost by taking care of the patient) and caregiver quality-of-life effects were included, the cost-effectiveness of the hypothetical Alzheimer’s treatment improved substantially, from $183,000 per QALY gained to $74,000 per QALY gained—a 60% decrease in the cost-effectiveness ratio. At a decision threshold of US $150,000 per QALY gained, this study demonstrated that failing to consider important value elements from a societal perspective can underestimate the value of novel medicines, impact coverage and reimbursement, limit access, and reduce the welfare of patients [46]

Fig. 5

The effect of life cycle pricing on cost-effectiveness analyses. Source: Lakdawalla et al. [51] (graphic borrowed with permission from No Patient Left Behind). Lakdawalla et al. reviewed a set of 20 traditional CEAs published by the US-based Institute for Clinical and Economic Review and accounted for several additional values as well as dynamic pricing [51]. Importantly, they used a “stacked cohort” model to account for patients starting treatment in years post-launch, including patients who start treatment after a drug has gone generic and therefore received extremely inexpensive benefits. Their base case assumption was that drugs would drop in price by 76%, based on the average decline of a historical set of medicines after their loss of exclusivity. However, recognizing that many of the drugs ICER was evaluating were outliers more likely to drop by more than that because they are specialty drugs for orphan disorders (e.g., the cancer drug Tarceva and the multiple sclerosis treatment Tecfidera dropped in price by over 98% after going generic), they included a sensitivity analysis that assumed a 90% price drop after 14 years [51]. Of the 20 drugs, traditional CEA had deemed only 8 to be cost-effective. But the more inclusive generalized CEA approach showed that 17 were cost-effective in the base case, and 18 were cost-effective in the sensitivity analysis. Interestingly, two remained above the cost-effectiveness threshold even in the sensitivity analysis. One was a drug that had failed its clinical trial and was not even approved for the indication that ICER had modeled (in other words, no one is asking society to pay for it). The other was a drug for sickle cell disease that was approved on an accelerated basis based on a biomarker and is still undergoing outcomes studies that would inform its cost-effectiveness. Lakdawalla et al. pointed out that their calculations only accounted for some of the traditionally missing values of these medicines and that adding in other elements, such as caregiver spillover, would likely further improve their cost-effectiveness

Fig. 6

Drug spending percentage of healthcare spending in real purchasing power parity 2020$, 1995–2018. Source: IQVIA Institute for Human Data Science [11]